How To Compare Properties in Different Metro Locations

In this article we will compare an identical property located in different locations to show the effects of property taxes, landlord insurance and state income taxes on cash flows.

Calculating Cash Flow

A formula for estimating cash flow is shown below:

Cash flow = Income - Recurring Expenses - State Income Tax

Or:

Cash Flow = (Rent - Debt Service - Management Fee - Insurance - Property Taxes - Periodic Fees) x (1 - State Tax Rate)

In order to demonstrate the impact of these factors on cash flow we consider the following property in three different locations:

Below are three cities with tax rates and landlord insurance costs:

Below are calculations for the example property in the three locations:

Austin:

Cash Flow = $1000 - ($600 + 8% x $1,000 + 1.9% x $150,000 / 12 + $1,625 / 12 + $0) x (1 - 0%) or Cash Flow = -52/Mo.

Indianapolis:

Cash Flow = $1000 - ($600 + 8% x $1,000 + 1.07% x $150,000 / 12 + $802 / 12 + $0) x (1 - 3.4%) or Cash Flow = 119/Mo.

Las Vegas:

Cash Flow = $1000 - ($600 + 8% x $1,000 + .086% x $150,000 / 12 + $710 / 12 + $0) x (1 - 0%) or Cash Flow = $153/Mo.

Summarizing the above:

As you can see, the same property will generate significantly different cash flow due to differences in property taxes, landlord insurance and state income taxes. When you are evaluating properties in different locations, all the major costs must be considered.