There is a huge disconnect between those outside of the industry who believe rental housing providers are wealthy with massive profit margins, able to endure rental moratoriums without collecting rent for over a year. To address this misconception, the following breakdown reveals exactly where every rent dollar goes.
The Breakdown of Every Rent Dollar
Mortgage Payments: $0.46
A significant portion (46 cents) goes directly to cover the property’s mortgage, ensuring the property remains available for residents.
Operating Expenses: $0.27
From utilities to insurance and ongoing maintenance, 27 cents cover the essential operating expenses that keep properties safe, functional, and well-maintained.
Property Taxes: $0.11
Eleven cents of every dollar of rent go towards taxes, which finance community programs such as schools, emergency services, parks, and other local services.
Employee Payroll: $0.07
Payroll for community staff, from property managers to maintenance teams, collectively accounts for 7 cents of every dollar of rent. Their hard work and dedication are what keeps every community thriving.
Capital Expenditures Reserves: $0.02
For future upgrades and significant repairs, owners allocate 2 cents to capital expenditures reserves. By doing this, they are future-proofing their communities and ensuring quality housing for their residents.
Profit: $0.07
There is a common misconception that rental housing providers enjoy large profit margins. In reality, only 7 cents of every dollar are returned as profit to owners. This slim margin underscores the challenging financial pressures that the rental housing industry faces.
If a unit rents for $1,000, only about $70 is left for the housing provider to cover their own living expenses. For just one unit without rental income, they must make up the missing $930 in expenses from other units or out of their own bank accounts.
Granted, these numbers are tailored to the multifamily housing industry but correlate fairly well with single-family rental properties. In single-family homes, operating expenses and repair costs might be slightly higher, while payroll costs may be lower. Without the economies of scale found in multifamily housing, the 7 cents allocated to profit and taxes are often even smaller.
Do the math, people!
If you earn a paycheck every week, how would it work for you if you still had to cover all the same expenses but were missing one or two paychecks a month? Multiply that by six to eight months, and consider how long you could hold on before selling your home or facing foreclosure. And remember, during the last big recession, many foreclosed homes were purchased by Wall Street landlords.
