How much % of rent goes towards expenses?

Question

Hello everyone,

I feel like I should've been able to find the answer to this question by looking through the forums but for some reason I cannot find it.  So forgive me if it was right under my nose.

So, when calculating expenses is there a guideline that you all usually go by when it comes to the % of rent that is being used for certain expenses?  For Example:

Expenses

Property Management %?

CapEx %?

Vacancy %?

Maintenance %?

Ect...

Thank you all and Happy Labor Day!!!

J Scott · Answer

That really depends on how you'd like to do it.  If you need to keep the funds separate in another bank account, there's no issue doing it that way.  For landlords who have multiple units, they will typically keep a separate account with reserves to cover all of their properties.  Keep in mind that if you own 10 properties, you don't necessarily need to keep 10x as much in reserves.  It's unlikely all the roofs will need to be replaced at the same time, for example.  Though you will have things like property tax bills that come due at the same time.

Michael Miller · Answer

I calculate these expenses very conservatively, but I will share my ideas to add to the pool.

Property Management 10%

-industry standard seems to range 2+/-% around 10%.  To be sure, just find out what the rates are for well-reputable companies in your area.

CapEx 1-10%?

This is going to vary widely depending on age and condition of asset, as well as for how long you'll hold it.  You'd better do an assessment of the condition of and when you are likely to replace and for what price the following capital goods: roof, drive, furnace, a/c, water heater, stoves and other major appliances, etc.

Vacancy ~8.3%?

This will vary depending on local rates.  Sometimes this information can be found online (e.g. http://www.city-data.com/housingDir2.html), but this data is difficult to trust.  This is the type of circumstance under which thorough knowledge of your investment's locality is necessary.  This is especially true in cities where there is demographic segregation by income, race, or occupation.  For example, in a university town in which the student body is rising in population (these figures are very easy to find, my hometown for example: http://ro.umich.edu/enrollment/enrollment.php), you may lower your vacancy rate.  If you are buying in a location where you already have assets, I'd suggest just gleaning a percentage from the average of your assets and applying that to your new asset if it is of a similar type.  Me, personally, I calculate one month per year, which is 8.3%.  I do this because sometimes turning the apartment takes time, sometimes finding a tenant seems easy, but then the tenant backs out, etc.

Maintenance 5-10%?

Again, this will depend on the age and condition of your asset.  Also, another key factor is your access to a handyman and/or trusted contractor.  Without these, you may want to estimate a high maintenance cost of about 10% as hiring 'experts' a la carte will likely be less cost efficient.

Nathan Patterson · Answer

From my research and readings it seems that 7-10% is the standard for Prop. Management, vacancy, maintenance and repairs.  I adjust cap expense depending on the properties age, sq feet, when it was done last etc.  Example, I don't need to put as much back for a roof if a new one was just put on 3 years ago, compared to one that needs one in a year or two.

Benjamin Blackburn · Answer

Thank you Account Closed thank you for your response.  I didn't think about collection loss.

Steve Vaughan · Answer

Over the long term, the consensus for all Op expenses here on BP seems to be close to 50%, not including debt. A lot depends on the age and condition of your building. Mine are closer to 32%, but I do 95% of everything myself.

I like Account Closed!

VAUGHN BLACK · Answer

Insightful post thanks! Good Luck

Benjamin Blackburn · Answer

@Vincent Crane Thank you very much man.

Vincent Crane · Answer

Generally 50% of the rent goes to expenses (not including debt service, the mortgage payment)

Property Management 10%

CapEx 1% of the property value every year (about 10% per month)

Vacancy 8%

Maintenance 10% monthly

Benjamin Blackburn · Answer

Ok makes complete sense.  Thank you very much!

Benjamin Blackburn · Answer

Thank you all for your insightful responses.  It really allows me to get a good feel of everything.  So, I have one more question and it might be kind of weird but here goes...

When it comes to the expenses that aren't getting paid monthly, where do those funds go?Are they just being stored in one seperate bank account?

How much % of rent goes towards expenses?

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