there isn't really an exact ## for either of those. The real question is whether or not the property cash flows after all expenses. Some districts have low property taxes, but tack on relatively large charges on local utility usage, etc.
If you are just trying to estimate your operating expenses, just to see if the property will cash flow at your local market rent, use a 30% of gross rent factor as a starting point.
Operating expenses include property taxes, hazard insurance, preventive maintenance, rental licenses, leasing fees, and advertising. If utilities are provided by the landlord, increase your operating cost factor by another 5%. If a professional property management service is to be used, add another 10%. If there is a property owners association fee, add another 10% to 20% depending upon the amount of the monthly fee. As you can see, all the elements comprising your operating overhead can consume quite a bit of your rental income, perhaps taking as much as 60%.
Of course you don't want to overlook a vacancy factor, either, so I suggest an amount equal to one month's rent for a single unit dwelling. If your net operating income is only 35% - 40% of the market rent, will that cover your debt service and still leave a large enough cash flow to feed a replacement reserve account?
If not, then perhaps this property is not priced right for a rental. Negotiate a lower price and run the numbers again. As you get accurate estimates of your true costs, refine your estimates accordingly.
You want to get the exact figures of your taxes/12 mos. to know monthly costs. Rent, however, will be what the market will bear.
Agree w/rmdane post! I bought a place in DE only to find that the town taxes are higher than County AND the local water/sewer is 4X my County bills and is fixed! Ouch. (Yes, I should have checked!)
I am equally concerned w/increase trends. I buy on the fringe of growing areas. Taxes start creeping up. Soon, tho, prices shoot significantly giving me large equity positions and rent increases. [ Edited by ceinvests on Date 12/02/2004 ]
there isn't really an exact ## for either of those. The real question is whether or not the property cash flows after all expenses. Some districts have low property taxes, but tack on relatively large charges on local utility usage, etc.
Positive cash flow is what you want.
If you are just trying to estimate your operating expenses, just to see if the property will cash flow at your local market rent, use a 30% of gross rent factor as a starting point.
Operating expenses include property taxes, hazard insurance, preventive maintenance, rental licenses, leasing fees, and advertising. If utilities are provided by the landlord, increase your operating cost factor by another 5%. If a professional property management service is to be used, add another 10%. If there is a property owners association fee, add another 10% to 20% depending upon the amount of the monthly fee. As you can see, all the elements comprising your operating overhead can consume quite a bit of your rental income, perhaps taking as much as 60%.
Of course you don't want to overlook a vacancy factor, either, so I suggest an amount equal to one month's rent for a single unit dwelling. If your net operating income is only 35% - 40% of the market rent, will that cover your debt service and still leave a large enough cash flow to feed a replacement reserve account?
If not, then perhaps this property is not priced right for a rental. Negotiate a lower price and run the numbers again. As you get accurate estimates of your true costs, refine your estimates accordingly.
You want to get the exact figures of your taxes/12 mos. to know monthly costs. Rent, however, will be what the market will bear.
[ Edited by ceinvests on Date 12/02/2004 ]
Agree w/rmdane post! I bought a place in DE only to find that the town taxes are higher than County AND the local water/sewer is 4X my County bills and is fixed! Ouch. (Yes, I should have checked!)
I am equally concerned w/increase trends. I buy on the fringe of growing areas. Taxes start creeping up. Soon, tho, prices shoot significantly giving me large equity positions and rent increases.