The fastest way to turn a "great deal" into a money-loser is to underestimate operating expenses. New investors often subtract the mortgage from the rent and call the remainder profit. Experienced investors know that a meaningful slice of every rent check is already spoken for — by vacancies, repairs, aging systems, and the cost of managing it all.
Here are the four expense categories that most often get skipped in back-of-napkin math, with the percentage ranges investors commonly budget for each.
Vacancy: 5-10% of Gross Rents
No property stays occupied 100% of the time. Tenants move out, units need turnover work, and re-leasing takes time. A vacancy allowance of 5-10% of gross scheduled rent covers this. At 8%, that's roughly one month empty per year — a reasonable baseline for most markets.
Lean toward the higher end for markets with seasonal demand, properties that attract shorter-term tenants, or units priced at the top of their neighborhood. A property that shows $1,800 in rent really produces about $1,655 a month at a 8% vacancy assumption — and that's the number your mortgage has to fit under.
Maintenance: 5-10% of Gross Rents (More for Older Properties)
Maintenance covers the routine, recurring stuff: leaky faucets, appliance service calls, gutter cleaning, paint and flooring touch-ups at turnover. Budget 5-10% of gross rents, and push toward — or past — the top of that range for older properties, which generate more calls and cost more per fix. A 1920s house with original plumbing behaves nothing like a 2015 build, and your budget should reflect that.
A common mistake is assuming a just-renovated property needs no maintenance budget. Renovation reduces near-term surprises; it does not eliminate tenant wear, weather, and entropy.
CapEx Reserve: 5-15% of Gross Rents
Capital expenditures — CapEx — are the big-ticket items that don't fail often but cost thousands when they do: the roof, HVAC system, water heater, appliances, siding, driveway. These aren't monthly expenses, but they are absolutely real costs; a roof that lasts 25 years and costs $12,000 is costing you about $40 every month whether you save for it or not.
Setting aside a CapEx reserve of 5-15% of gross rents smooths those lumpy hits into a predictable line item. Size it by inventory: list the major components, estimate each one's replacement cost and remaining life, and you'll land on a monthly figure. Newer properties with recently replaced systems sit at the low end; older properties with original everything belong at the high end or above.
Property Management: 8-12% of Collected Rent
Professional property management typically charges 8-12% of collected rent, often plus a leasing fee when placing a new tenant. Budget this line even if you plan to self-manage. Two reasons: first, your time has value, and a deal that only works with free labor isn't really cash-flowing. Second, circumstances change — you move away, scale up, or burn out — and a property that can't afford management is a property you can never step back from.
If you do self-manage, that 8-12% becomes your compensation rather than a cost you avoided.
Putting the Percentages to Work
Stack these up and the picture gets honest fast. On $24,000 of annual gross rent, a mid-range budget might look like: vacancy 8% ($1,920), maintenance 7% ($1,680), CapEx 8% ($1,920), management 10% ($2,400) — about $7,900 before taxes, insurance, and utilities even enter the picture. That's why seasoned investors chuckle at listings advertising "rent $2,000, mortgage $1,400, cash flow $600."
Every percentage here is a starting point to adjust for your property's age, market, and condition — not a law. The free Shouldirefi Deal Analyzer builds all four categories into its cash-flow estimate, with each percentage adjustable, so you can see what a deal looks like under honest assumptions before you offer.
All figures are estimates for informational purposes only — not financial advice. Consult a qualified professional before making financial decisions.