Real Estate Investing
The numbers that actually matter on a small rental property
Notes from managing single-family rentals: the line items new owners underestimate, and why capital expenditure is the one that ends people.
Minmosa Realty 3 min read
These are operating notes from managing a small portfolio of single-family rentals, not investment advice and not a recommendation to buy any particular property.
The line item that ends people is capital expenditure
Not maintenance — capital expenditure. Maintenance is the leaking faucet. Capital expenditure is the roof, the HVAC, the water heater, the siding, the sewer lateral. These are predictable in aggregate and catastrophic if unbudgeted.
Service lives vary with the equipment, the installation and how hard it is worked, but as a planning assumption: a roof is often good for twenty to twenty-five years, an HVAC system for fifteen to twenty, a water heater for ten to twelve. Hold a house long enough and you will buy all of them. The mistake is treating the years before those purchases as profit.
Every one of those components has a known replacement cost and a known life. Divide one by the other and set that money aside monthly. The number is usually larger than new owners expect and it does not care whether you have set it aside.
Vacancy is not an edge case
A single property is not a portfolio, and a single vacancy is not diversifiable. One three-month vacancy on a house you thought would rent in two weeks is a quarter of the year's gross income.
The cost is not just the missing rent. It is also the utilities you now pay, the lawn you now mow, and the mortgage that does not pause.
Turnover costs more than the vacancy
Cleaning, paint, whatever you deferred while the house was occupied, the carpet you have been nursing along, listing and showing time. Realistically one to two months of rent every time a tenant leaves.
Which reframes the whole tenant relationship. Retaining a good tenant is not a nicety, it is the highest-return activity available to a small landlord. Everything follows from that: fix things quickly, renew at a fair number, be someone worth renting from.
Your time is a cost even when you do not bill for it
Self-managing looks like saving eight to ten percent. It is really trading that percentage for the calls, the coordination, the showings, and the Sunday evening water heater. Fine if you want the work and the control. Expensive if you were quietly assuming the time was free.
What we would tell someone starting out
Underwrite the boring version. Assume the roof needs replacing sooner than the inspection suggested, assume a longer vacancy than the market average, assume more was deferred than was disclosed. If it still works on those numbers, it probably works.
And look at the crawl space. Always look at the crawl space.
Related reading: how we price a Durham rental home covers the revenue side of the same arithmetic.
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