The 50% ratio buzz is most likely for the lower rent, high maintenance type tenants, in “section 8” areas. If I replace a refigerator with a new one for a SFH where the rent is $600, the price of the refigerator would not be three times as large if the rent runs $2,200 a month.
In fact, I have a SFH renting for $2,000 in an area where rents for SFH starts at $2,200. I charge below market rent, and becuase of it, I got tenants that stay for years, and rent it out in a few days when a tenant moves. In other words, little vacancy expense.
For instance, for the tax year 2005, landscaping cost $1,170 for this property, and repairs ran a mere $360.00, plus another $350 for a maintenace contract on the furnace and hot water tank. And when the tenant heard landscaping costs are going up, I was looking for a cheaper guy, they asked if they can do (have their teenage son) it for “free”, and if I keep the rent steady.
So for tax year 2006, I no longer have landscaping costs, as they’ll be paying for weed control etc. And the year before that, 2004, the tenant, fairly well to do, as I confirmed her salary on move in a close to $120K/year, volunteered to replace the range, dishwasher, washer, dryer and leave it there when they leave, if I replace the 20 year old refigerator with a new one. I agreed. So that was the extent of my repair expenses for 2004, the replacement refigerator. It was to their benfit to replace the washer dryer as the ones I supplied them was several years old, and they pay repair expenses below $200.00
So I never spent 50% of gross rent, or anywhere near $12,000/year for repairs. The only recent year that I spent that much was when I replaced the roof, siding on three sides of the house, all the windows in the front, all for about $12,000. That was in 2001, I thought of selling the place, and thanks to Osama, I took it off the market and the value climbed from 249K to a hight of 400K last year.
I know it’s not a money maker for someone paying market prices for it today. But since I paid 70K for it as a preforeclosure in 1983, I did very well with the appreciation, and got some good current cash flow to go with it.
With new appliances, service contract on the heating system, roof, siding a few years old, the tenant taking over responsibility for landscaping, I can’t see how a formula of 50% gross rents for repairs would apply to me.
It’s true, if I was paying 50% of gross rents for repairs, i would be losing money.