New landlords tend to subtract property tax and insurance from rent and call it "cash flow". Experienced landlords subtract a much longer list. Here's the full checklist — the missing items are what turn a 10% cap rate into a 4%.
Operating expenses (every month)
- Property tax — 0.5–2.5% of property value annually, divided by 12.
- Insurance — $80–200/month typical for single-family.
- HOA — highly variable, $0 to $500+/month.
- Utilities — if landlord-paid (water/sewer often; others less common).
- Property management — 8–10% of rent if used.
- Landscaping / common-area maintenance — $50–150/month.
Reserves (budgeted but lumpy)
- Maintenance — ~1% of property value per year. A clogged drain one month, a fence repair the next, a broken appliance after that. Averages out over time.
- Vacancy allowance — 5–8% of rent. 1 month per year is typical; longer gaps between tenants are normal.
- Capex reserve — 0.5–1% of property value per year. Roof, HVAC, water heater, flooring, paint, appliances. These aren't fix-its — they're periodic replacements.
- Leasing / turnover costs — ~50% of one month's rent per turnover on average. Listing fees, cleaning, paint touch-up, minor repairs, maybe a month vacancy.
Worth knowing (one-time or occasional)
- Closing costs — 2–5% at purchase, 6% at sale (commission).
- Tenant screening — $30–50 per applicant.
- Legal / eviction reserves — evictions can cost $3–10k and take months.
- Tax preparation — rental income complicates taxes. Budget for an accountant.
- Umbrella insurance — $300–500/year for $1M coverage. Worth having.
The honest bottom line
On a single-family rental, true operating expenses (everything excluding mortgage) typically run 30–50% of gross rent. If your pro-forma says 20%, you're missing items. If it says 50%, you're either being thorough or the property is expensive to run.
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