What's Your True Expense Percentage?

Question

When you're estimating expenses on a rental before purchasing, what percentage do you typically reserve for operating costs?

Do you use a standard percentage?

Or do you calculate each expense individually?

I'd especially like to hear how experienced landlords handle older properties where maintenance can be harder to predict.

Matthew Tregoning · Answer

The repair bill is only part of it with an STR. An old AC going down can mean a refund plus an emergency callout. I'd ask about service history and how quickly someone can get parts, not just the age of the equipment.

Ashish Acharya · Answer

Linda, I think this is one of the areas where a simple percentage can be useful for a quick screen, but it can become dangerous if you rely on it too heavily.

For an initial analysis, some investors use broad expense assumptions to quickly eliminate deals, but before purchasing I’d rather break the expenses out individually whenever possible. Taxes, insurance, HOA, property management, utilities, vacancy, repairs, and CapEx can vary dramatically between properties and markets.

The age and condition of the property are especially important. An older property with original systems may need a much larger maintenance and CapEx reserve than a newer property, even if both have the same rent.

I’d also separate normal operating expenses from larger capital items. A roof replacement or HVAC system shouldn’t be treated the same way as routine maintenance, but both need to be accounted for when deciding whether the property actually works.

The goal isn’t finding a perfect expense percentage, it’s making sure the deal still holds up when assumptions are not perfect.

Feel free to DM me, I’d be happy to send over our Turn Key Rental Analyzer so you can compare properties using detailed income, expense, financing, and cash-flow assumptions.

Andrew Steffens · Answer

I dont think you should just affix a % to expenses as each house is unique - take the time to write out each column.

Joseph Zimmerman · Answer

I build it line by line on each property, since my custom P&L already runs those lines every month. Taxes and insurance are known a year ahead, so the only part I'm really estimating is repairs. A roof lands once and wrecks a monthly average. Capital items get their own line.

My two handle that differently. The condo sits in an association, so my repairs line there only covers what is inside the unit. On the house I carry the building too. I read twelve months of actuals on that one.

Gregory Acs · Answer

I don't use a fixed percentage by itself. I prefer to estimate taxes, insurance, maintenance, vacancy, capital expenditures, and property management individually, then stress-test the numbers with a little extra cushion for older properties. I'd rather be pleasantly surprised than discover the deal only worked because my expense assumptions were too optimistic.

I also like to look at how those expenses affect financing and cash flow before making an offer. A deal that still performs well with conservative assumptions is usually much easier to own long term. If anyone wants to compare different financing scenarios or pressure-test a deal, I'd be happy to help.

Mike Grudzien · Answer

Good question!

Linda Murray · Answer

I completely agree. A percentage can be helpful for an initial screen, but I’d want to dig into the actual expenses before making an offer. Especially with older properties. And separating routine repairs from major CapEx is important because those bigger expenses can really change the cash-flow picture. Thanks for sharing this!

Linda Murray · Answer

Absolutely! With an STR, an equipment failure can turn into much more than just a repair bill when it impacts a guest’s stay. Looking at service history and how quickly repairs can actually be handled is a great point.

Linda Murray · Answer

Agreed. A percentage can be useful for a quick screen, but every property has its own story. Taking the time to break the expenses down individually can uncover things a blanket percentage might miss.

Linda Murray · Answer

That makes a lot of sense, especially separating the capital items from routine repairs. Having 12 months of actuals to work from is also a huge advantage when you’re trying to understand what the property really costs to operate. Great insight!

What's Your True Expense Percentage?

What's Your True Expense Percentage?

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