The difference between rent collected and rent kept is the most basic question in property ownership. A $36,000 rental that costs $12,000 a year to operate keeps $24,000. The margins matter.
How it works
Operating expenses include property tax, insurance, maintenance and repairs, property management if you use it, utilities you pay, vacancy allowance, and HOA fees if applicable. Subtract the total from gross rent to find net operating income and your profit margin as a percentage.
Expenses eat most of the rent
A common surprise: a $3,000 monthly rent property might spend $1,000 a month on taxes, insurance, and maintenance alone. Vacancy costs an additional $250. Property management takes $300. You are left with $450 in net income from $3,000 gross—a 15% margin. That is why knowing your actual expenses is critical: a property that looks good at the rental level might not be good after expenses.
What this does not include
This calculation covers operating expenses only. It does not include mortgage payments, principal paydown (which builds equity but is not an expense), or capital expenditures like a roof replacement. Those come later in the cash-flow analysis.
How to use this calculator
- Enter your annual rental income—the rent you actually collect, accounting for vacancy.
- Enter annual operating expenses: property tax, insurance, maintenance, management, utilities, and HOA.
- The result shows net operating income, profit margin, and the percentage of rent that goes to expenses.
Frequently asked questions
What is a normal expense ratio?
On residential rentals, 30–40% of gross rent going to operating expenses is typical. On commercial property, 35–45% is common. Lower than 30% is excellent and rare. Higher than 50% means the property is struggling, either because taxes/insurance are high or it needs constant repairs.
Should I budget for maintenance?
Yes. A common rule is 1% of property value annually for maintenance and repairs. A $300,000 property should budget $3,000 a year. If you have been lucky and spent zero, you are not being realistic—the roof will eventually fail, the HVAC will break, and tenants will cause damage. Budget it even if you have not spent it yet.
Is property management a real expense?
If you manage the property yourself, your time is an expense, even if it is not a line item. Most property managers charge 8–12% of rent. If you manage it yourself and save that, you are paying in labour. If you hire management and it costs more than 12%, the property is not generating enough income to support a management company.
