All Forum Posts by: Dan D.

I've spoken with dozens of landlords who have owned many hundreds (thousands?) of units across diverse locations, and the 50% rule holds more time than not (where "50%" means 45-55%).

The only exception I've seen is in locations where taxes are disproportionate to rental income...

Without knowing the two specific locations you're referring to, I can't comment on your specific example...but my gut tells me that some of your assumptions about "identical" houses, tenants and finishes is off.  Also quite likely that taxes are very different.

Or perhaps you just happened to find two areas that defy the 45-55% standard...

If the house rented for $1200 instead of $1800, then the house is likely smaller, in a worse location and/or in worse condition.  Therefore, these other things would likely be impacted as well:

-  Taxes would likely be lower

-  Insurance would likely be lower 

-  If the property were smaller, capex would be lower, as would turnover costs

-  If the property were in a worse location, the standard finishes would likely be cheaper

-  If the property were in a worse condition, the standard of living/repairs would be lower

-  Property management costs would scale downward by a linear amount to the rent

Add up all those savings, and you'd find that you'd likely save $300/month between a house that rents for $1800 and a house that rents for $1200...

@Dan D. 

Rural areas present another set of variables:  Is there area growing/coasting/dying? Is the clientele population working locally, or commuting 100-150km (60-90 miles) to a larger centre?

Tenants in rural areas tend to stay longer (our observations, no stats), but vacancies take longer to fill.  The cost of maintenance/turnover could be higher if you must commute to the property.

We recently had the opportunity to purchase ~50 units (4 buildings) in the small town where I spent my teen years.   In the context of my memory of the area, the deal looked very attractive ... and it would have been if this were still the 1970s.  

However the local economy has been on a 25yr decline with no sign of turnaround due to over reliance on a dwindling natural resource.  The young folks who can leave, do.  The remaining population is aging (retired) or underemployed.  Services have left the town (there is no longer a full service hospital).  The quality of the tenant population has fallen dramatically - there is more empty housing stock, so those who have any semblance of steady employment can secure their own house.   In light of the present environment, I'm not sure the deal would be worth it if the buildings were given to us.

 The two are not mutually exclusive.