50% Rule - Lowest Cost/Efficient Producer
I don't want to debate if the 50% rule in this thread. I want to talk about the assumptions and categories to see how a landlord can be a lowest cost producer/efficient entrepreneurs.
I know it varies from state to state. But my general assumptions are (feel free to correct me if I am wrong).
6-10% Property Management
From what I have read others have said property management accounts for 10% of the 50% rule. So if a property owner does that himself effectively they should save about 10%.
5-20% Property Taxes
This is a huge difference state to state and depending what you focus on. I think Texas these costs are massive.
5-15% Vacancy
This is another thing that will vary a lot depending on area, pricing, skill of manager, quality of unit, etc.
2-5% Insurance
This cost cannot be altered very easily. Lower end units I would assume have a higher cost by %.
0-20% Utilities
Some landlords pay for water/trash. All the utilities, etc.
0-5% Landscaping
Some landlords provide landscaping others don't.
5-20% Maintenance/Repair Contingency
This is I think the biggest unknown for all landlords. It is very difficult to track the big items (new roof, etc) over short periods of time.
Does anyone have any trade secrets/ideas that they would like to share to beat these numbers?
Some general ideas I have:
- Self manage (providing they are skilled at it)
- Keep tenants longer than average
- Get maintenance done for good price
- Discounted insurance
- Turn vacancies faster (this is a big overlooked one)
- Get above market rents
- Raise rents regularly
An example:
I know a landlord that has an average stay of 8 years versus 2 years. That makes his vacancy ratio 2% versus the average 8.3% (1 month a year) assuming a 60 day turn. He rents a bit under market to achieve this though?
Things I do:
- Self Manage
- Repairs are done by my flip workers at cost (I would assume I pay 50% of market value).
- Blanket insurance policy
- I am sometimes a bit more flexible with credit to get market++ rent. This has worked out very well so far.
Obviously, I am substituting my time and resources to earn some of this money that I could hire out.