Take the rent your unit collects in a year and multiply it by 0.75. That is roughly what a mortgage underwriter will let you count, and it is the fastest sanity check on a rental you will ever run. If your unit does not work at 75 percent of gross rent, the lender already knows something you may not.
The number is not folklore. HUD’s Single Family Housing Policy Handbook tells lenders that when a borrower has no rental history on a property, effective income is the lesser of the operating income on Fannie Mae Form 216 or 75 percent of fair market or lease rent. A quarter of the rent is assumed gone before anyone looks at your receipts.
This post takes that 25 percent apart using published figures, so you can see which parts are knowable in advance and which are not.
The arithmetic, on $1,800 a month
Gross rent: $21,600 a year. The lender’s haircut prices operating cost and vacancy at $5,400. Where does $5,400 go?
Vacancy: start at the national rate, then adjust down
The Census Bureau put the national rental vacancy rate at 7.3 percent in the second quarter of 2026. Applied to $21,600, that is $1,577 a year of rent nobody collects.
Treat that as a ceiling for a well-run single unit, not a target. A national rate blends overbuilt Sun Belt markets with tight coastal ones, and it counts units sitting empty for reasons that have nothing to do with you. What it is useful for is scale. Vacancy is a four-figure annual line item on a $1,800 unit, and it is the single largest cost most first-time landlords leave out of their spreadsheet entirely.
The controllable half of vacancy is turn speed. Days between tenants is the metric, and it is mostly a scheduling problem: how fast the unit gets inspected, how fast the make-ready work gets booked, how fast the listing goes up.
Insurance: about $1,400, with a wide range
The closest published national figure is the NAIC’s average premium series. In 2021 the average HO-3 homeowners policy ran $1,411 a year. Two caveats, both worth stating plainly.
First, HO-3 is an owner-occupied form. A landlord insures a rental on a dwelling policy, which prices differently, usually higher for the liability exposure and lower for the contents you do not own.
Second, the state spread is enormous. In the same NAIC data, average premiums ran from $780 in Wisconsin to $2,437 in Florida. A national average is a placeholder until your own renewal quote arrives, and the renewal quote is the only number that belongs in your model.
The deductible is a separate line, and it is the one that bites
Insurance industry loss data from ISO covering 2018 through 2022 shows about 5.79 claims per 100 policies a year, at an average severity of $15,747. Fire and lightning claims averaged $83,991. Water damage and freezing averaged $13,954, and that category is roughly seven times more common than fire.
Read those numbers as a budgeting instruction rather than a scare. A claim is unlikely in any given year and expensive when it lands, which is exactly the shape of risk insurance is for. What insurance does not absorb is your deductible, and a $2,500 deductible on a water loss is a real cash event in a year where you also had a vacancy.
This is also the reason the tenant’s own policy matters to you. Renters insurance covers the tenant’s belongings, which yours does not, and it carries the liability coverage that keeps a small incident from arriving at your policy first.
Property tax: no national number will help you
Property tax is the one large line item where a national average is actively misleading. Rates are set by county, city, school district, and sometimes a special assessment district, and the assessed value that rate applies to follows local rules that vary by state.
Pull last year’s actual bill from your county assessor or treasurer. It is public, it is usually online, and it takes about four minutes. Then check whether your state reassesses on sale, because the bill the previous owner paid may not be the bill you will pay.
Maintenance: what the residual tells you
Run the subtraction. On $21,600 of rent, the 25 percent haircut is $5,400. Vacancy at the national rate takes $1,577. Insurance at the national HO-3 average takes $1,411. That leaves $2,412 for property tax, routine maintenance, turnover work, and everything else.
In most of the country, property tax alone eats most of that. Which is the honest finding here: the lender’s 25 percent is not generous, it is a floor, and it assumes the building is in decent shape. It contains no capital reserve. A roof, a furnace, and a water heater all fail on schedules measured in decades, and none of them are in that $5,400.
So budget maintenance from the building, not from a rule of thumb. Age of roof, age of HVAC, age of water heater, age of the service panel. Those four dates predict your next five years better than any percentage.
The lines nobody counts
Four costs that rarely appear in a first-year spreadsheet and always appear in a first-year bank account:
- Turnover. Paint, cleaning, locks, and the small repairs that only surface when the unit is empty. Charged to the deposit only where the damage is real, which is usually less than landlords expect.
- Leasing. Listing photos, screening, and the hours between an inquiry and a signed lease.
- Professional fees. Tax preparation for a Schedule E property, and the occasional hour of legal advice that saves a much larger bill.
- Software and banking. Real, small, and easy to size. LeaseRooster is free for the first three units, and $39 a month at the next tier. Compare that against your own hours before you call it a cost.
Do this with your own numbers
- Pull twelve months of statements for every account the property touches.
- Sort them into the categories Schedule E already uses, so the same work files your return. The tax deductions checklist lists them.
- Add your actual insurance renewal and your actual county tax bill.
- Count the days the unit was empty, not the months.
- Divide the total by gross rent. If the answer is above 25 percent, you now know which line made it so.
The property management cost calculator runs the software side of that comparison, and the reporting view will hand you the twelve months by property once the categories are attached.
A last note on the arithmetic above. Every figure in it is a published national average standing in for a number you can actually look up. Averages are for scale. Your unit is not an average, and the whole point of running this once a year is to find out where it differs.
This is general information, not legal or tax advice. Rules change and local ordinances vary. Confirm current requirements with your city, county, or an attorney before you act, and talk to a CPA about your own return.