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What Is a Good Expense Ratio for a Rental Property?
As a real estate investor, you’re probably wondering: What is a good expense ratio for a rental property?
A good expense ratio can vary depending on the location of the property. A magic number of around 30% is probably what you’re looking for. This is just one component in rental costs though. It should account for about 1/3 of your total budget. You also have to factor in vacancy rates and other assorted operating expenses. You really need at least a $1,000 per month profit to make the deal worth your while.
An income property provides you with a lot of flexibility regarding total revenue is realized by you. If an investment generates about $300 a month in rent but has a mortgage balance that’s $250 higher than its cash value, your rental revenue can be reduced to around $100 a month.
Why would you do this? Well, if your cash flow is good enough that you’d have little problem paying the mortgage balance every month, it allows you to better manage your expenses and subtly guard against economic downturns. That lessens your risk of losing the property if a downturn is particularly severe.
For more information, check out our page on rental property expenses.