New member calculations... Looking to learn

7 Replies

Wondered if I could get some more experience REI eyes to look over my numbers. Something doesn't seem right—am I really not going to make any money?

I'm looking to convert my current home (7 yrs old) into a rental.

Current PITI: $983 ($11,796/yr)

Estimated Rent: $1900 ($22,800/yr)

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Principal: $254 ($3048/yr)

Interest: $350 ($4190/yr)

Real Estate Taxes: $276 ($3315/yr)

Management Fees: $2769/yr (listing fee = first months rent, $79/mo after)

HOA: $60 ($720/yr)

Insurance: $75 ($900/yr estimated 20% higher than current rate)

Vacancy: $2280/yr (10% gross income)

Maintenance: $2280/yr (10% gross income)

Income Tax: $3024/yr (gross income - PITI x 25%)

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So my rough estimates have $22,800 in gross income to $22,605 total expenses. If I assume my property management company has another renter lined up I may be able to reduce vacancy costs... but other than that, it doesn't seem like there's much wiggle room.

Is this a bad idea? Everyone I've told that my total payment is under $1k and could rent for $1900 has said I'd be stupid not to rent it out. But it doesn't seem like the numbers add up? Am I missing something? Or am I being overly cautious on a 7 yr old, turn-key property?

Thanks for your help!

Why pay someone to manage just a single property. Do it your self. Do you spend tha much in repairs yearly living there? Cut down on the damage by up charging another 100 to 200 bucks a month a get a good renter. Also, its illegal but who cares only rent to single women or old women. f you are nervous go with the easiest person who will do the least amount of damage.

Good point @Thomas D. ... To be honest, I was more interested in using a property management company to take care of all the legal documents and rent collection (and evictions if things got ugly). There's NO way I spend that much in maintenance now, and I'm fairly handy and my father-in-law is a general contractor. I was trying to think longer term if I need to replace a water tank or furnace, etc. and had seen that 10% number thrown around a couple times.

@Jordan Hamm I replied to your other post on this but I'll copy/paste that reply here.

Here's how I see your numbers. I added a 5% CAPEX and removed the income tax altogether. I'm not familiar with anyone using the projected income tax in there analysis.

Gross Rent $1,900.00

Mortgage (P&I) $604.00

Property Taxes $276.00

Insurance $75.00

Maintenance $190.00

Cap Ex $95.00

Management Fee $79.00 (This is a GREAT price on a $1900/mo rent. Traditionally 10%)

Vacancy (10%) $190.00

Total Expenses $1,509.00

Net Operating Income $995.00

Monthly Cash Flow $391.00

Yearly Cash Flow $4,692.00

Simple Monthly ROI 25.91%

Also, your initial PITI amount doesn't match the total for the individual PITI line items.

Originally posted by @Walter Key :

@Jordan Hamm I replied to your other post on this but I'll copy/paste that reply here.

Here's how I see your numbers. I added a 5% CAPEX and removed the income tax altogether. I'm not familiar with anyone using the projected income tax in there analysis.

Gross Rent $1,900.00

Mortgage (P&I) $604.00

Property Taxes $276.00

Insurance $75.00

Maintenance $190.00

Cap Ex $95.00

Management Fee $79.00 (This is a GREAT price on a $1900/mo rent. Traditionally 10%)

Vacancy (10%) $190.00

Total Expenses $1,509.00

Net Operating Income $995.00

Monthly Cash Flow $391.00

Yearly Cash Flow $4,692.00

Simple Monthly ROI 25.91%

Also, your initial PITI amount doesn't match the total for the individual PITI line items.

 Walter you  are pretty much spot on...

Jordon I think managing  your self and keeping matienence  cost down could only help a project like this.

Alex

The first thing that jumps out at me is the Income Tax. I wouldn't include it. If your accountant does your returns right, he'll depreciate that property enough, as well as write-off all the expenses, to make your rental income tax-free. That's how it should work at least. Depreciation levels and such may vary a little, but for the most part one of the biggest benefits of rental properties is the income should usually end up being tax-free. 

Makes a big difference!

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