I have no issue with the figure and as you stated I wuold have loved to known that number 8 years ago when I got into rentals. Also, by definition, if the “average” is 45-50%, then half the poeple are doing better than that. I now have more than 2 dozen rental unit so I have refined my analysis model over time; I can do better than that. As an engineer who has co-controlled a $6M/yr budget and faced with cutting cost and/or people in the now famous tech bust, I’m all about cost control. If you get motivated (i.e. faced with giving people who bust their butts for you pink slips, you can find cost saving) I’m also personally a tightwad to say the least.
I operated in several other market in the East Coast outside of my “home” market in Calif, but I’m not from here/there either (I’m an East Coast guy). I’ve also analysized deals is in about 10 other states both East and West Coast.
So with that, here a few thoughts:
Rent is based on quality and bedrooms. Most renters don’t really figure in whether trash and water are include or not. A great example is I bought a property a few blocks over from some stuff I already owned (paid no utilities). The Seller seemed to forget to disclose that his utility expense was $2.5k/yr (yes, I asked). It get the same rent as it about similar grade for 2 bedrooms. However, a building with a gross rent of $2000/mn, when I got the first water/trash/swer bill for $200 (per month), I was not a happy camper. I’m still cash positive, but its not the deal I thought it was.
Another point is propery management (prop. mger, you’ll love this). I have usually used more “mom-n-pop” places taht have a lock on the local/niche market. I recently started using a big time prop. mgmt company in a college market as they have major marketing muscle. I quickly found out that the local contractor screw them over as they charge crazy prices as they know most owners are either not watching or big corporate owners. I got a charge for $160 to install 4 mini-blinds (!!!); it just so happen in a nearby market about 15 miles away, I have my mom-n-pop prop mgmt do a similar job for $46. Of course, for my Calif. rental, it woudl have been a $15 expense at Wal-Mart, 1 hour time and a few Buds ;D On a property that grosses $1250, $100 (over) charge is significant.
So in conclusion, the 45-50% is great rule of thumb, but you MUST dig into the details to analyze a deal and you must actively MANAGE cost as an owner (especially if you use prop. mgmt). Work the number and figure range of where expense will fall. By statistics, calculating a single number for budget will almost certainly be wrong.
BTW, I’m not a hand off guy either as my stuff in Calif I do most the work myself. My wife and I did some work on a duplex this summer which would have cost $15k+ (we have about $4k in materials into it; plus some chiroptractor bills after I killed my back by working 12 hrs days doing a new deck).
Sorry for the long post; just some thoughts and contribution to a healthy discussion.
MB in Calif.