Posted by Ben T on November 05, 2009 at 20:34:22:
In Reply to: Where's the Money? posted by Dr. B. (OH) on November 03, 2009 at 08:06:14:
Alot of this is going to depend on where your property is located. It's
also going to depend on the type of property.But I will say this: I generally figure 40%-50% expenses on house
rentals. When I say expenses though, Im including taxes and
insurance. I'm also assuming some vacancy, legal costs, advertising,
repairs, etc etc. But that figure is also meant to include the cost of
things like new roof, HVAC, exterior paint and so forth. Because if you
own the property long term, you're going to end up replacing each of
these things. The money spent is not a "repair expense", but rather a
capital expenditure. It won't be an accounting deduction from your
income. Rather it will be amortized over the subsequent 27.5 years.
Nonetheless, I have that factored in when I say 50% expenses, because
part of that is the monthly amount that you would set aside to
eventually repair the roof.I will also say that low end properties rent for higher numbers, as
someone below said. However, they also require higher expenses
typicallly, at least that's how it's worked for me.I noticed JT used an expense ratio of 20%. I would highly doubt that
this percentage includes taxes or insurance. When you get the taxes
and insurance in there, along with deferred maintenance, it's quickly
going to be 40-50% in my opinion.So here's the bottom line...if your rents happen to be 1%, you're
probably not going to cash flow. I need more than that. I have to
believe that in Ohio you can get 2-3% in the lower end areas. Start by
looking at the rental comps in the area, not using some rule of thumb.
You can die with rules of thumbs.Ben T