Books on Calculating Expenses?

Question

I plan on purchasing my first rental property (SFR or 2-4 Units) in the next 6 months and want to prepare the best I can. I've read a couple books but I haven't found a book that shows you how to really analyze expenses. I'm hoping there's a book that can give general estimates, percentages, rules of thumb, etc. to calculate expenses. Obviously each property varies greatly but there's got to be some good material out there right ?

If you have any personal experience or insight I'd love to hear your recommendations!

Jon Crosby · Answer

Hi @Forrest Baker, congrats on deciding to take the plunge into REI, I think it's great you are starting young and while you have a full-time job.  Lots of us engineers in here by the way you will notice (M.E. degree for me but I.T. most of my career).  :)

Being an engineer you (like all us engineers) I think we love the idea of real estate and the simplicity of using a fairly basic formula(s) that we can use to achieve our goals.   But we often get caught in analysis paralysis because some of the variables become way too squishy for our comfort level.  So, just want to encourage you to not get too wrapped up in the minutia of numbers but still obviously perform your due diligence before you make any offers.

As for calculating expenses, for a SFR it's really not that tough (vs say a short-term rental or commercial property).  Get the property tax rate, then multiply it by your purchase price for your annual tax bill. Put aside $100-$200/month for future CapEx, put 5-8% gross rent aside for vacancy allowance, 8-10% net rent for property management (if you choose to use it) and then, of course, any HOA, landscaping, pool cleaning, etc.  Utilities are sort of different region to region but shouldn't be hard to figure out.   Those will get you to your NOI and then apply any financing/mortgage below that line for your final cash flow.

Plenty of books out there but as I mentioned, it's not that tough.  In fact, you might want to pick up a book on multi-family and once you know that an SFR is going to be a piece of cake. Try anything by Ken McElroy...he has great stuff on that topic.

Best of luck to you!