Is the 50% Rule a Good Way to Estimate Expenses on Rental Properties?


9 thoughts on “Is the 50% Rule a Good Way to Estimate Expenses on Rental Properties?”

  1. The best expense ratio that I ever got was 11%, but over 6 years that property averaged about 23%. Some properties average more than 50%. I look at that, is it an anomaly?, is it a one time happening, or is it a set pattern? One factor that will increase your expense ratio is vacancy. You can’t eliminate vacancy, and will always have vacancy, but I try to reduce it and have two current 30 year tenants. And if a property has recurring vacancy there is a problem. An investor I know has a property for 8 years and has never had a tenant stay for a full year, That’s a big problem and he ending up selling it to an owner occupant, who went to jail after being there only 4 months. Can you say curse?

  2. Good post.

    One other factor that can skew this is just the cost of properties in your area. Where I live, prices are high; a 4 bedroom house costs around $300,000 and rents for about $2,000. In another area, the same house might sell for $200,000 and rent for $1,500. If they were identical houses, they’d have the same repair expenses, but since I am dealing with higher prices, that makes up a smaller percentage of my monthly rent (assuming all else is equal).

    • James, why are you buying $200-$300K rental homes. Never understood this. You could buy 3-5 lower end homes for the same price and double or triple your income.

      I do apartments in NC and that rule is fairly accurate as a starting point. But we also know how much per door given the age of a property that expenses should be. From there you can also tell if rents might be below or above market before further research is required.

  3. I find that the 50% rule works well for very cheaply priced properties. In these your rents are so low, that even a small repair can take up a large percentage of the rent. Also I find that it works well on say apartment buildings. For the properties in the middle it does not hold up. Of my properties, Id say my expenses on my single units average about 20%, and on my multifamily about 30-35%.

  4. It will definitely vary, but 50% seems very high. Personally I use a replacement schedule and maintenance schedule to determine property costs. It uses the costs and frequency of replacement/service (along with remaining life for replacement items) to come up with an estimated monthly cost.

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