Expense Ratio?

Question

I believe you do your own management and maintenance. How does that affect your expense ratio? Does that take it down to 40 or 35% on average??

Also, is there any maintenance/repairs/improvements that you never do yourself? Do you hire out bigger projects like replacing roof, siding or HVAC systems?

I ask because my goal is to be able to replace my 9-5 income with net rental income and be free!!!

Jon Holdman · Answer

The 50% number include property management.  If you do that yourself, you're earning that cut.  Around here, that's 10% of the collected rent and half to a full month's rent to fill a vacancy.  So, that's at least a 10% extra increment.

Michael Rossi · Answer

An average would be about 20%.

Andy More · Answer

Mike and Mark, thanks for the words of encouragement.

Mike, care to take a guess as to how much of that 50% you "EARN" by doing your own management and maintenanance? 15%? More,less?

I'm trying to figure out how much money I need to EARN and cash flow 50k a year or so.

Mark N.A · Answer

If I was your age, Andy, I'd jump over the local community college and take all the HVAC, plumbing and electrical courses I could, up to and including getting licensed.

With those skills you will be able to 1) take on rehabs other investors cannot afford and, 2) save a mint on service calls.

Andy More · Answer

Mark, I'm 32 and in good shape and would consider myself fairly handy. I tried to think of something that would rhyme with Mark but couldnt think of anything clever! I've been a part time landlord for about 5.5 years and enjoy the repair/maintenance involved with rentals. "become REALLY KNOWLEDGEABLE and then sub the work". I agree with this statement and have tried to learn everything I can over the last 5.5 years so I would always have the option of doing work myself or subing it out and just overseeing the work if I choose.

Jon,  "if you own a bunch of properties, and do all the management and maintenance yourself, you may not be as free as you want." I hear ya. Let me define my definition of free. Freedom to me is not following somebody elses path, I want to follow my own. I would happily work more hours than I do now if I was working for myself. I want 100% of the profit and am willing to take 100% of the risk. I'm somewhat burnt out on my current job(mortgage loan officer, 8 years) and want to do my own thing.

My goal is to be able to go full time before I'm 40. I've got about 240k to devote to this endeavor but think I will need closer to 500k before I can do it right and go full time.

Mark N.A · Answer

Are you handy, Andy?

Roofing is 'relatively' simple but labor intensive (are you young and strong?).

Carpentry sometimes seems simple, but isn't always so.  Plumbing, electrical and HVAC increase in complexity (and danger).

IMO, one good solution is to become REALLY KNOWLEDGEABLE and then sub the work out to people who know more than you do, but just aren't bright enough to go into business for themselves.

Leveraging your time, so to speak.

Jon Holdman · Answer

A lot of repairs are simple and cheap, but cost a bundle when someone has to do it.  You call a plumber and you're paying $100, even if its to fix a $5 item.

I won't do things where there is a liability issue.  If a project needs permits, it also needs licensed plumbers and electricians.  While I could do most of this work myself, I don't want to take on the potential liability of doing the job without permits.

Keep in mind, too, if you own a bunch of properties, and do all the management and maintenance yourself, you may not be as free as you want.  While its not a nine to five job, when things happen, you have to deal with them.  Sometimes on short notice.  Its not like you can go to the tropics for the winter while the rent checks come in.  Pure investments are ones where you put in the cash and the money comes back.  Property management and being a handyman are jobs, not investments.  If you own 50 properties (doors) and management and maintain them yourself, you have a job just the same as the guy who works in a store, an office, or a factory.

Andy More · Answer

Thanks Jon! Any opinion on the repair/maintenance portion of that 50%?

Expense Ratio?

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