What are your general guidelines for expenses?

Question

Hello all,

I know that expenses vary on several factors and are different for every property. For example, you got to call an insurance agency to get a quote, rehab and maintenance will be different based on age, size, and other factors, and utilities change based on usage. However, if I am just analyzing properties quickly, are there any quick ways to guesstimate the expenses - like rough percentage thresholds for each expense category?

Here's a list of expenses:

Accounting
Advertising
Insurance (fire and liability)
Janitorial Service
Lawn/Snow
Legal
Licenses
Miscellaneous
Property Management
Repairs and Maintenance
Resident Superintendent
Supplies
Trash Removal

- Taxes -     Real Estate                    Personal Property              Payroll                        Other

- Utilities -     Electricity                    Fuel Oil                       Gas                            Sewer and Water                Telephone

Thanks in advance!

Stephen

Noah Chappell · Answer

@Stephen Brown Brandon's book on rental property investing has a great table breaking down the general lifespan of many cap ex, including cost, and a break down of yearly & mostly savings required to replace. It also goes into the remaining expenses. Highly recommended.

Paul Shannon · Answer

It's hard to say without more details.  Example.....3/1, 1,000 sqft house in the midwest w/ 5 year life left on any major replacement items.....I'd be setting aside $125 a month for maintenance and $125 a month for capex.  I'd also have some reserves set aside just in case your furnace blows, or something else, 6 months into owning the property.

If you don't spend your reserves great.  But if you need them they are there.

Check out J. Scott's book "The Book on Estimating Rehab Costs".  Talk to contractors locally about prices and hit Home Depot to get an idea of supply costs.  You'll have a better idea of what to budget.

Stephen Brown · Answer

Thanks Paul. Do you have any rough guidelines for capex? I know it depends on the property.

Paul Shannon · Answer

I'm sure you've heard of the 50% rule.....50% of gross revenue is your net.  That's the back of the napkin calculation.  But that's just to disqualify 90% of the deals that come across your desk.  You've got to dig deeper.  Are you managing or hiring a property manager?  Have the taxes been on a homestead exemption due to the house being owner occupied?  What the lifespan of the the cosmetic and cap ex items at the time you rent?

Be conservative in setting aside reserves and anticipate future cap-ex and replacement items and you'll have a firmer number.

What are your general guidelines for expenses?

Most Popular Reply