What do you use for Expense Ratio?

[David C.]

I’m looking at buying a LTR. When determining the net income, I simply multiply gross rents by an expense ratio to determine the net income. My question is, what do experienced LTR investors use for the expense ratio? I’ve heard 50%, maybe 40%.  The expense ratio is used for an initial screening, actual expenses would be determined before buying.

[Bill B.]

You can only ask someone that invests in the same age/type properties in the same market as you. The expenses aren't the same for a 120 year old SFR in Duluth, MN as they are for a new build in Phoenix or a condo in Hawaii.

In 25 years with a dozen properties I’ve spent zero on roofing or outside painting. That’s not a good budget for the Duluth property. 

There's too many variables like HOA, mowing, snow removal, property type, property age, carpet vs tile/LVP, etc etc. Are you self managing? Is the insurance $400/yr or $4,000? Except for maybe the management fee. None of these expenses change based on the rent.

I just looked up one of my average of my SFR Vegas properties last year.
8% property management, 10% prop tax, 3% insurance, 0% vacancy (my average stay is a little over 5 years.), <3% repairs and capex combined, 2% HOA.

So I pay about 26%. But if you didn't have an HOA and managed yourself you could be at 16%. But you might be in an area with higher insurance or property tax rates, you might have to pay for utilities or lawn/snow if it's a SMF.

TLDR:  reach out to local investors that have bought what you’re looking at and ask them. Or research about 10 and see if 80%+ are basically the same. If so, use that, if not, you’re going to have to research each one.