Rental Property Expense Percentages?

Question

So I am trying to refine my spreadsheet for rental property analysis, and I am trying to figure out what percentages to allocate for the various expenses that come with a property. Right now I set aside 24% of the gross rents for repairs, vacancy, and capital expenditures (8% for each one), and I have not been allocating for property management because I would start out by managing my own properties. I have recently decided that it would be a good idea to plan to have to pay for property management at some point so I wanted to put that in at 10% of gross rents.

This is where my question comes in, if I were to add up all of those expenses that would come out to roughly 34% of the gross rents (this doesn't even include the financing and utilities allocation). So I was wondering, is this model accurate? What do experienced investors with multiple units have to think about this? Do you guys really spend 34% of your gross rents on repairs, capex, vacancy and property management?

All responses are greatly appreciated, thank you!

Joe Villeneuve · Answer

Stop trying to use percentages. They don't apply the same to every property. You can't guess (that's what you're doing) what the actual costs might be before hand using the same percentages for each property you might come across in the future.

When you come across a property, use the real numbers...with dollar signs in front. Leave the percentages in the garbage can.

When you come across a property, use the real numbers...with dollar signs in front.  Leave the percentages in the garbage can.

Tim Jacob · Answer

There are properties that have all expenses with property management that average 34% or less over the long haul as the vacancy, maintenance, and pm can be cut down along with utilities and with taxes, insurance, and whatever is left its still that low.

There are others that average 80% for all tbe expenses which of course doesnt include the mortgage.

In general its about the asset quality based on location and how broken down the asset is.  Thats how you really cut down your expenses.

Bill B. · Answer

It also has to take in to account things liek property age, state/local property tax rates (I pay less on 3 x $300k Vegas properties combined than my brother pays on his $400k house)  insurance rates for that area, (I pay less than 1/4th in Vegas compared to MN) type (my $600k townhome in MN is $400/year, my $300k house in Vegas is $650). Construction (stucco siding and tile roofs, I have several 20 year old roofs that should go another 20 years in their sleep, I paid $7500 to reroof a 12 year old property on MN) and age property. Maintenance depends on materials. %’s change based on property cost. (A $1000 refrigerator is a different percent in a $1000k condo renting for a$800/mo than a $400,000 home renting for a $3,000/mo. )

Find a local investor that’s been renting out the same type/age properties in the same city as you’re looking at. Most are more than willing to share. I’ve done so for new to Vegas people many times...

Kenneth Garrett · Answer

@Henry Reimer

I agree with @Joe Villeneuve about using actual numbers.  The percentages are guides only. Repairs and Capex will change from property to property based on age and condition.  Vacancy rates are based on the vacancy rate per the location.  I put together a capex table (excel) with values for life expectancy, but each property will have different numbers.

Rental Property Expense Percentages?

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