Most owners don't know what their actual return is.

[John Walbridge]

Most owners don't know what their actual return is. They know the rent amount. They know the mortgage. But they've never actually calculated what they're making after everything.

Here's what eats into your return that most people forget to count:

Vacancy. Even if your property is rented 11 months a year, that's 8.3% vacancy. On a $2,000/month property, that's $2,000 you're not collecting. Most owners budget zero.

Maintenance. The rule is 1% of property value per year. On a $300,000 property, that's $3,000 annually whether you spend it this year or not. It averages out. Water heaters don't care about your budget.

Turnover costs. Even a good tenant leaves eventually. You're paying for cleaning, paint, minor repairs, advertising, and lost rent between tenants. Average turnover in Orlando runs $1,500 to $3,000 depending on condition.

Property management if you're using it. Leasing fees if you're not. Your time if you're doing it yourself, and your time is worth something even if you're not counting it.

CapEx. The big stuff. Roof, HVAC, appliances. These don't hit every year, but when they do, they're $5,000 to $15,000. If you're not setting aside money monthly, you're just hoping nothing breaks.

I see owners who think they're making $400/month cash flow, but they're not accounting for any of this. Then the AC dies in July and suddenly they're negative for the year.

You don't have to be a spreadsheet person to run the real numbers. But you do have to count the real costs.

What are you actually clearing after everything?

[Eric James]

Quote from @Jay Hinrichs:

Quote from @Shiloh Lundahl:

@John Walbridge That is because accounting is boring.  I find out how much profit I make on each flip or on each rental after all the book keeping has been completed and then we run reports.  So every couple of months I will see what each property has generated.  But then I have to take into account the amount that I pay my assistants who manage my projects and my lease option rentals. It is a little harder to allocate precisely how much of their time goes to each property and each project because obviously they don't spend their time equally on each project or property.  So I can tell you business level profits at the end of each year but not so much property level. 

you find out when you file your tax return at the end of the day its net number .. either up or down although depreciation can and does make projects negative for the tax man. 

on a per property basis the cash flow is so tiny I mean who spends a ton of time to see if they are making 100 a month  I know I dont or would not..  

Flipping much eaiser to figure out.. long term rentals not so much

 Exactly. All they need to do is add back in depreciation and add in principal pay down to get their actual cash flow. But maybe they don't actually want to know.