Updated almost 9 years ago on . Most recent reply
Running numbers- how to be accurate
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@Josh Cohen - You are correct, that is exactly how the 50% rule works. The main thing to realize is that this is a very rough estimate; based on your market (property taxes, utilities, etc), you can change from 50% up or down so that your estimate is closer to your actual expenses.
Insurance is based on your own shopping around - I include all insurance as one lump sum in my calculations.
So when you're talking about getting an accurate number for your more in-depth studies, you need to make sure you consider the "normal" incomes and expenses. I usually break expenses between monthly expenses and what I call "percentage expenses" - percentages are usually taken off of your monthly income as a percentage (probably obvious from the name...).
Incomes:
- Rental Income
- Other (laundry facilities, garages, storage units, etc)
General Expenses:
- Property Taxes
- Insurance
- Utilities
- Mortgage Payment
- HOA fees
Percentage Expenses:
- Property Management
- Vacancy Rate
- Maintenance (I usually include lawn care and snow removal in this number)
- Capital Expenses ("CapEx" - this is your savings for big-ticket items such as AC's, utilities, roof, etc)
- Income Tax (most people forget to tack this expense on at the end!)
Take your income, subtract your expenses, and you have a much better understanding of what your income will be.
My newest calculator (which I'm aiming to finish this weekend) will be an in-depth one that goes through the numbers.
My first calculator does the 50% rule - very good to do a super-quick estimate on a property
My second calculator takes the income and generates an estimate for what a property is worth based off of the cap rate that you want to achieve - good for getting some estimates of what your offer might be on a property