FUNDAMENTALS

The Real Cost of Owning a Rental Property (Beyond the Mortgage)

Updated March 2026

The Expenses Everyone Forgets

New investors run the numbers with mortgage, taxes, and insurance. Maybe a management fee. But the real picture includes a dozen line items that quietly destroy margins: vacancy loss (5-10%), maintenance reserves (8-15% of rent depending on age), turnover costs (\$2,000-4,000 per turnover), capex (roof every 20 years, HVAC every 15, water heater every 10), legal fees for occasional evictions, accounting fees, utilities during vacancy, and lawn care.

The 50% Rule

Roughly half of gross rental income goes to operating expenses — everything except the mortgage. Collect \$1,500/month? About \$750 covers taxes, insurance, maintenance, management, vacancy, and reserves. The other \$750 covers the mortgage. Whatever's left is cash flow. On a \$1,500/month rental with an \$850 mortgage, that leaves roughly negative \$100/month. Most investors are surprised when they run honest numbers.

Big Tickets That Wreck a Year

A roof costs \$8,000-15,000. HVAC runs \$4,000-8,000. Sewer line replacement is \$5,000-10,000. Foundation work can hit \$15,000+. Any single one wipes out 2-3 years of cash flow. This is why capex reserves matter — \$100-200/month per property into a separate account. If you're not doing this, you're not investing, you're gambling.

What This Means for Analysis

Total operating expenses (not including mortgage) should be 40-55% of gross rent. If your numbers show 25%, you're missing something. You're either ignoring maintenance, vacancy, or management — or you're not valuing your own time. Both mistakes show up eventually.