Let’s break down how each dollar of rent money is portioned out. How it’s used, and why.
Remember, these figures are based on averages. The idea is to compare one category to another, not to get tied up with exact numbers.
We’ll start with you, the passive investor.
Owner Cash Flow — $0.09 / $1.00
This is where the least amount of rent money flows.
Yes, that’s right, the owners (both limited and general partners in a real estate syndication) only get 9% of each dollar earned.
Of course, that is a significant amount in terms of passive cash flow for the investor.
But as you’ll see below, the rest of the rent goes towards expenses and debt service to support the operation of the property.
Societal Benefits Via Property Tax — $0.14 / $1.00
Property taxes eat up an average of about 14% of the profits.
Of course, that goes to the community in the form of schools, emergency services, and other local infrastructure.
Since high-rated school districts are a huge driver of demand and rent increases, this can be seen as a very positive supporting cost to maintain the value of the property and sub-market.
Capital Expenditures & Operating Expenses — $0.37 / $1.00
$0.10 of every dollar goes to capital expenditures.
That includes roof repairs, unit renovations, pool and playground upgrades, etc. Basically meeting the current standards of residents, and again supporting the value-add business plan which allows the property to attract and retain ideal residents.
Then, another $0.27 of every dollar goes to operational payroll expenses.
Things like paying the property management team, the cost of utilities, insurance, and so on.
In other words, keeping the property running smoothly.
Debt Service — $0.39 / $1.00
A whopping 39% of rental profit goes toward mortgage payments. Again, this is based on a national average.
Let’s remember: smart debt structures allow you to have the investment opportunity in the first place. The key is having a sponsor who can negotiate good terms with lenders.
But just be aware that the reality of commercial real estate investing means that a significant portion of rents will go to servicing the debt.
The big takeaway of this breakdown is to understand that rental housing owners do not lean on large margins.
A well-structured deal can and will reward investors.
But that is driven by consistent, growing rent payments.
And those rent payments are thoughtfully deployed, not just as profit, but to ensure a high quality of life for residents, to support the local community, and to keep the property operating effectively.
