What's your 2025 opex ratio?

Question

I was doing some analysis on my 2025 rental portfolio, 60+ units mostly 1950s single family homes in midwest.

My rules:

- exclude rentals less than 1 year hold

- exclude rentals that had disaster during the year (I had a fire and a flood)

My units are professionally managed. Technically only 11 months excluding December performance. My opex is at 35% of actual collected rent. Wonder what everyone else is at?

Allen L. · Answer

@Allan C. great point on comparing growth rates. I’m very pro long-term tenancy, so I typically price my rents slightly below market on renewal, usually by up to 5%. In return, I believe I achieve longer average tenancy than many peers, which ultimately boosts my top line because vacancy and turnover are so costly.

I see some local investors putting higher-end finishes into their rentals and pricing above market, but they often end up with shorter tenancy and longer vacancy between tenancy. That trade-off doesn’t make sense to me.

For long-term rentals, vacancy is one of the few levers I can actively control, so I prioritize minimizing it.

Allan C. · Answer

Mine range between 30-40%. For me it's less about the opex ratio, but more so about the rate of rent growth vs opex growth. Since you've had your portfolio for a while, I suggest you trend those variables.

I treat REI like a business, so I'll try to grow income where market allows, but I'll spend more effort trying to curtail expenses. Obviously your goal is to widen the spread, so focus on what you can control

Expenses are also a function of market, as some of my properties have taxes at 65% of total expenses, while others are 15%. There are only so many handles when controllable expenses make up 35% of total expenses, so in those markets I look for value-add opportunities to increase top line.

With the size of your portfolio, some light analysis can point out where you have excessive expenses. You can then determine if it's worth making some capital improvement to reduce expenses (say within 3-5 yr payback).

Stuart Udis · Answer

@Allen L. You are going to get numbers all of over the place. A 1950s single-family home worth $100,000 will almost always operate at a meaningfully higher operating-expense ratio than a 1950s home worth $1,000,000, simply because the higher-value asset can absorb fixed and semi-fixed costs more efficiently. Many expenses do not scale linearly with value, so they consume a far larger percentage of gross income in lower-value properties.

Single-family homes have fewer OPEX inputs than multi-family because certain items can be placed on the tenant's responsibility list (depending on local regulations). This can materially alter opex compared to a multi-family building that requires snow removal, common area cleaning & utilities, pest service and other misc. opex items that may not apply to SFH's

Then there's the reliance on self-reported data from individual investors, many of whom self-perform work, defer maintenance, or ignore routine capex items that prudent real estate operators treat as ordinary annual expenses. When those costs are excluded or understated, the resulting performance metrics are inherently distorted.