Investor · Rosemont, IL · Member since 2018 · 49 posts · 15 votes
Hi BP,
How do you guys typically go about expenses on a SFH? Do you have a general rule, or advertise relative to what the market is offering? I have yet to purchase a property, but think it would be smartest to pass the utilities, trash, and snow removal/lawn down to the tenants due to there being less variance; however, I'm having a hard time estimating rents as rentometer, Facebook, Craigslist, etc. doesn't always include if a listed rental rate is or isn't including X,Y,Z with rent.
I pay electric water and trash for all of my properties for 2 reasons:
1. I never have to call and start a cleaning ticket, have utilities turned on for cleaning, worry about heat, etc.
2. I make a ton of money on it. Well not a ton, but a good bit. I live in a low rent area, Arkansas, but purchase prices are low as well. Here is an example. 10 unit apartment building all 1bed/bath paid $175k. Base rent would be 350 max. With utilities paid, I get $550. I figure water/trash to be roughly $50 per unit and electric to be around $100. I have had a few tenants go over the $50 water, but rarely. My leases states those numbers as maximums I will pay and the tenant is responsible for overages. My actual average water bills are $40 and electric is $75. I’m making an additional $85 per unit by paying utilities, because I could never ask $435 and get it, but by offering utilities paid, I can.
@Lee Stephens I make the tenant responsible for utilities anytime is humanely possibly. We are now experimenting with RUBS for our units that are separately metered. Tenants seem to be a lot more responsible with utility usage when they know they're paying for it. It also increases my bottom line and reduces the time I spend on the property.
The best thing for you to do is scope out your competition and see what they're doing. In my market, the landlords still include everything. So to combat that, I slightly lower my monthly rent and destroy them in unit quality.
Hey @Lee Stephens! For our single family rentals we like to purchase in better neighborhoods which can demand for more rent. We typically like to buy these homes that may need a little bit of work so we can build some really good equity into the property. It also allows us to put nicer amenities into the properties (i.e. update kitchen, update appliances, update bathroom, etc.). This again allows us to demand higher rents and also allows us to bring in a more quality tenant.
With all our single families the tenants are responsible for utilities (water, electric/gas), snow removal, grass cutting, and yard care (i.e. maintaining landscaping along with grass cutting). This actually gives our tenants a sense of ownership over the property which can really keep your rentals in great shape. It can also lead to your tenant wanting to purchase the property at some point in time if they decide they want to buy and you want to sell (at the right price of course :)).
When looking at expenses try to remember these major things and these are generalities:
Mortgage
Taxes
Insurance
Repairs (typically 1 month's rent for a 1 year lease.)
Vacancy (typically 1 month's rent for a 1 year lease)
Property Management Costs (typically 1 month's rent of a year lease)
If you can produce a solid cash flow for your rental after these expenses are paid then you could be on your way to a nice cash flowing single family rental.