What Goes Into $1 Of Rent? What Landlords Wish Renters Knew

Share

You don’t have to study the history of property management to know there can be friction between landlords and renters. And thanks to all the myths about property managers, it can feel like renters always get the benefit of the doubt (in the court of public opinion). Perhaps the biggest myth about landlords is that they enjoy large margins and can keep going without a steady stream of rent payments. If only more of the public knew how every $1 of rent is actually broken down. Of course, your business’s actual breakdown may vary depending on management fees, property taxes, payroll and employee benefits, maintenance expenses, etc. We hope this piece helps property managers and owners explain their side of the story to renters as well as the general public.

Where we got our data

Here’s the original infographic from NAA that covers everything discussed in this article. It might even make a great printout to keep handy at your office.

A dollar bill folded into the shape of a house, representing where every $1 of rent goes

Owners: 10 cents of every $1 rent 

Owners get about 10% of a property management business’s total income. While the public may sometimes see owners as being part of large, faceless corporations, many apartment owners run small businesses that operate on slim margins. 

It’s common for people to “own” rental properties without realizing it. That’s because many pensions and 401k plans are invested in real estate, often in the form of REITs. The success of these funds depends in part on the success of the rental property industry. That 10 cents per $1 of rent helps the industry thrive, which in turn keeps investors and retirement planners happy.

Payroll: 10 cents of every $1 of rent

Property managers may charge owners 8–12% for their services. This fee covers payroll expenses (totaling over 17.5 million jobs in the industry).

Capital expenditures: 12 cents of every $1 of rent

Renters like having a well-maintained building, but they don’t always realize that 12% of their rent is going toward capital expenditures. These projects ensure the property is not only maintained, but updated regularly.

Related article: Check out How To Write A Rent Increase Notice, and don’t miss the sample letter at the end.

Property taxes: 14 cents of every $1 of rent

Property taxes take up a big chunk of rent. Owners and homeowners are well aware of how much they pay in property taxes, but renters don’t always think about them as being part of their rent. These taxes support schools, first responders, construction projects and other community needs. They can be a lot of money, but we’re certain landlords wished more renters knew how important they are. 

Operating expenses: 16 cents of every $1 of rent

It takes a lot to keep a property running. Property insurance, utilities, maintenance, etc. all factor into the operating expenses of a property. One of the perks of renting is that the resident isn’t responsible for property upkeep. The tradeoff is that they have to share the cost of that convenience with other renters.

Mortgages: 38 cents of every $1 of rent

The mortgage is often the biggest expense a property owner faces. It’s also the most important. If a property is foreclosed on, the entire community could lose their housing. If more renters thought about their living situation this way, they might be more understanding of the costs and challenges their landlords face.

Can’t we all just get along?

With good communication, many renter concerns can be resolved quickly or avoided altogether. So, if they want to know where their money is going, use the information in this article to help them see the big picture.