I do a lot of income/expense analysis of income properties. Right now, property taxes (alone) are eating up 10% or more of the rents right off the bat. Add insurance, administrative (banking, accounting, tax prep, etc) expenses, maintenance costs, etc, and the real expense load starts at 30% and goes up from there. If you add in a total of two months vacancy or collection loss over an average 7-year holding period that adds up, too.
The ratios are actually higher for single family residences because of the economy of scale thing.
Check it out: MM home rents for $2000/month and is assessed at $300,000:
Annual rents = $24,000
$3,300 for taxes
$1,100 for insurance
$ 800 for administrative
$ 800 for annual repairs/maintenance
$1,000 for annual budget for painting, flooring, etc.
———
$7,000 in expenses
$20,368 for the mortgage payment ($270k Mtg @ 6.5%)
———
$27,368 in outlays
-24,000 in rents
———
-$3,368 in negative cash flow, not counting tax benefits if there are any. This is a best case scenario. That’s if the house never sits vacant for a single month and never has any big repair items. It assumes that you will do new paint and carpet every five years, which is stretching it if your tenants move every year.
At 7.5% for the mortgage the combined annual negative would run about $5,500/year.
