Savvy investment owners understand there are three key factors in retaining returns on their rental investments; Vacancy, Maintenance Costs and Evictions. As a Professional Property Management Company Access has worked diligently to secure greater returns in these areas. Let’s begin first by looking at average statistics and comparing them to our performance.
First, there are a few general rules of thumb for calculating maintenance costs on rental properties. One way is to calculate 1% of home value on a yearly basis, therefore a $400,000 home would cost you $4,000 to maintain or about $333 per month. This method may work well for your primary residence, but not as well for a rental property where you are stretching use-of-life on various items. A better method is to use the 5x rule: whereas maintenance costs will average 1.5 times the monthly rental rate. So in cases where your rent is $2,000 you would expect to spend $3,000 a year on repairs. This is much closer to the commonly used 8% used on pro-forma’s when calculating costs.
Second, we take a look at vacancy. Vacancy can be a difficult expense to measure as varies based on many differing factors e.g., area and rental rates. Typically we see 3-5% vacancy listed on most investment proforma’s and a trusted source from Bigger Pockets lists 5% as their measure. If we use the median 4% this means a loss of $1,200 a year on that same $2,000 rental.
Lastly, we look at eviction rates. Obviously the true-cost of evictions and the average rates is the most difficult to understand. The data shows across the Nation evictions happen at a 4-5% chance, a recent article places Los Angles at a 3% eviction rate.
Now, to compare.
In using the example of a $2,000 rental the total.
Maintenance cost = $3,000/yr
Vacancy cost = $960/yr
Eviction cost = estimated $120 a year risk
Access has done the following:
Average maintenance cost on our portfolio of owners: 6% of gross rents
Average vacancy cost on our portfolio of owners: 2.0%
Average eviction rate n our portfolio of owners: 2.5%
Maintenance cost = $1,440/yr
Vacancy cost = $600/yr
Eviction cost = estimated $80 a year risk
Estimated savings of $1,960.00/yr by using Access Asset Management Inc. Our monthly service pays for itself and gives a return of $772.00 in this scenario.
Sources:
https://www.nytimes.com/2018/04/10/us/california-today-housing-eviction.html
https://www.biggerpockets.com/renewsblog/2014/12/02/rental-property-expenses/
https://www.zillow.com/blog/investing-101-estimating-rental-property-expenses-94824/
https://www.realpropertymgt.com/rental-property-maintenance-myths/
