Calculating Cash Flow - Am I doing this right?

8 Replies

Hello Everyone!  This is my first post to the BiggerPockets forum.

My boyfriend and I have been looking into investing is a real estate property. We've read many books, done our own research, listened to podcasts, etc. in order to prepare for this next adventure. I have been practicing using the four corners worksheet to calculate income, expenses, cash flow, and ROI for different houses to get a feel for what is going to be cash flow positive.

So, the real reason I'm here is because one of our coworkers is selling his townhome and came to us first to see if we would like to use it as a rental property.  It's a 4 bed, 1.5 bath, 1400 square foot townhome.  It needs a new roof, new HVAC, new appliances, and new flooring on the second floor.  He is willing to offer us the home for $135,000.  I have entered the numbers into the worksheet, but I wanted to get another opinion of whether I'm doing it right.

Total rent per month: $1300

Purchase price: $135,000

For expenses I have:

Mortgage payment: $648

Taxes: $146/mo

Insurance: $84/mo

Vacancy (5%): $65

Repairs: $100

CapEx (10%): $130

Property Management: $100

Adding all this up, I've calculated a monthly cash flow of $27.

I'm stuck on calculating the rehab cost.  Since we need big stuff like a new roof and HVAC I'm sure it's close to $30,000.  Any additional help would be much appreciated!  

Thanks in advance.

Well I don't think you need to worry too much about the rehab cost because even without the rehab, you're only looking at $27/month. So the rehab will blow that deal into the negative pretty quickly.

VA isn't known much for cash flow right now, so it's not that you are calculating anything wrong or not figuring out cash flow. It's just not really there.

Is it just the rehab cost part you are stuck on? If you were to figure that out, you definitely can't estimate it. You'd want to get a home inspector out there and then follow that with contractors and get actual quotes (and then add some in addition to that for the assumption that rehabs tend to cost more than planned to some degree).

That's a reasonable estimate, though I think your PM fee is low.  Many charge 10% of collected rents plus half to a full month's rent to fill a vacancy.

I recently bought an OOS property and this is how I did my calc:

Purchase Price135000
Down27000
Closing5400
Repair initial
Total Out of Pocket32400
Monthly Mortgage547.22
Monthly Tax162.50
Monthly HOA0.0
Monthly Insurance65.0
Property Management108.33
Home Warranty insur32.3
Monthly Misc expense50
Total Monthly Expense965.36
Expected Rent1300
Cash Flow334.64
Net Annual Income 4,015.67
ROI @ No vacancy12.39%

So in your case. I'll add that 30k into your initial repair and the ROI at 11 month occupancy would be 5.8%.

The question is Have you checked the comps in that area and are you getting a discount from your co-worker? If not then why go with them?

One last note: you make your money when you buy. You should strive to get a good discount off of FMV. If it needs rehab, factor that in before you look for a discount. So, purchase price, plus rehab costs minus your discount needed should be what you are prepared to offer.

You need to check comps in your area, to determine if you really are getting a deal from the coworker.
I think PM and vacancy are low, 10% for PM and 8-10% for vacancy are what I use.

As others have said, rehab costs need to be added to purchase price. There is no money in this deal, especially once you add in rehab costs.

Hey Katie,

Are you using the biggerpockets calculator? I know you have to be a pro-member to use it but you can certainly use it up to 4-5 times for free. Also, I found a calculator that is similar to the biggerpockets but is unlimited in the amount of times you can use it. If you'd like to know where to find it send me a PM and I'll direct you to it. Like the others said this "deal" isn't a deal even without factoring in the rehab costs. Other than that, you'd probably want to look at your coc return and factor in your down payment as well. Hope that helps.