estimate assumptions of 50 percent rule

2 Replies

I searched for this, but did find any post, that listed specifically percentage breakdowns of the 50 percent rule. I know this is just an estimate, based on some research, that operating expenses for rental property tend to average 50 percent of gross rents over time.

Here is my estimate breakdown, based on rental properties in Indiana. Taxes and Insurance are pretty fixed costs in Indiana, the others are total estimates.

Property Taxes  (11 percent)

Property Insurance (5 percent)

Vacancy   (6 percent)

Maintenance/Repairs   (8 percent)

Capex(Roofs,HVAC etc) (10 percent)

Total Operating Expenses    40 Percent of gross rents without management

Total Operating Expenses with property manager  50 Percent.

I don't use property management currently, but may in the future. While self managing I figure I am running 40 percent operating expenses long term. 50 percent with management.

How would you break down your 50 percent rule in your area?

In part the point is to NOT break down these expenses.  That because a number of them, while inevitable, are irregular and hard to predict.  The hope is that you don't get hit with a bunch of big items all at once and things sort of average out over the long term.

I use 14% for property management.  That's because PM's here charge 10% of collected rents plus half a month to fill a vacancy.  So, one vacancy a year translated into 1/24th of the annual rent, which is about 4% per month.  So, I use 36% for expenses if I'm doing the management.

Jon,

I understand the point of the rule is not break down everything.

But if your in a high tax/insurance part of the country, I would guess it's possible to have 30 percent of gross rents, just going to taxes/insurance.

I am curious, how you get 36 percent for yourself?

What do you factor in for capex and general maintenance/repairs?

Thank you!

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