50% Rule - Lowest Cost/Efficient Producer

[Steve L.]

I don't want to debate if the 50% rule in this thread. I want to talk about the assumptions and categories to see how a landlord can be a lowest cost producer/efficient entrepreneurs.

I know it varies from state to state. But my general assumptions are (feel free to correct me if I am wrong).

6-10% Property Management
From what I have read others have said property management accounts for 10% of the 50% rule. So if a property owner does that himself effectively they should save about 10%.

5-20% Property Taxes
This is a huge difference state to state and depending what you focus on. I think Texas these costs are massive.

5-15% Vacancy
This is another thing that will vary a lot depending on area, pricing, skill of manager, quality of unit, etc.

2-5% Insurance
This cost cannot be altered very easily. Lower end units I would assume have a higher cost by %.

0-20% Utilities
Some landlords pay for water/trash. All the utilities, etc.

0-5% Landscaping
Some landlords provide landscaping others don't.

5-20% Maintenance/Repair Contingency
This is I think the biggest unknown for all landlords. It is very difficult to track the big items (new roof, etc) over short periods of time.

Does anyone have any trade secrets/ideas that they would like to share to beat these numbers?

Some general ideas I have:
- Self manage (providing they are skilled at it)
- Keep tenants longer than average
- Get maintenance done for good price
- Discounted insurance
- Turn vacancies faster (this is a big overlooked one)
- Get above market rents
- Raise rents regularly

An example:
I know a landlord that has an average stay of 8 years versus 2 years. That makes his vacancy ratio 2% versus the average 8.3% (1 month a year) assuming a 60 day turn. He rents a bit under market to achieve this though?

Things I do:
- Self Manage
- Repairs are done by my flip workers at cost (I would assume I pay 50% of market value).
- Blanket insurance policy
- I am sometimes a bit more flexible with credit to get market++ rent. This has worked out very well so far.

Obviously, I am substituting my time and resources to earn some of this money that I could hire out.

[Account Closed]

This summer I had 6 evictions, 2 breakins, and 2 hvac units stolen... Everything bad came at me in a 3 month span....it's imperative to think conservatively in rentals... The goal isn't to buy as many houses as possible bc you could just end up with a lot of maintenence and problem tenants... Too often we focus on the number of units but we all have different goals... Some leverage some dont...some are more young and aggressive, some are cautious and retiring... Some buy 10k houses in the hood and some buy 300k houses to rent out... Either way, it's best to have the CASH to handle problems... I don't like to rely on credit that's here today, and the banks could take away tmrw....also, you mentioned bank financing for the next properties... Banks will want to see those cash reserves for each property before lending on the next... Access to credit may not suffice