I am new to real estate and I am unsure of how to come up with monthly expense amounts. When calculating cash flow, how do you know the amounts for the monthly expenses such as mortgage, taxes, insurance, vacancy, repairs, etc. I wouldn't want to take a deal that does not have good cash flow.
Some of these expenses can be determined and others are "best guesses". ie, for taxes, you can find the tax rate on the county website and then plug in the purchase price as it may adjust to that. An insurance agent can give you a quote for the property. The mortgage will of course be based on the purchase price and interest rates and a loan officer should be able to give you very close numbers.
Vacancy, repairs, capex, etc. is usually a percentage of the rent for most people. I use 8% for vacancy, 10% capex, 5% maintenance and management if you don't do it yourself is about 10%.
What type of deal are you referring to?
Hi @Shayla Rogers ,
I would recommend what John said. The only thing I do differently is 10% for PM, $100 per unit for CapX, $100 per unit for repairs, and 5% vacancy rate. These are monthly amounts by the way. Obviously, you can mess around with your numbers in excel and see what you are comfortable with. Also, you can adjust these numbers based on your “emergency fund” that you keep on the side.
One recommendation I’ve notice, is nothing ever goes as expected so it’s always good to steer on the safer side of things! Goodluck!
When I am evaluating a property you have the standard PITI = Principal, Interest, Taxes and Insurance. Then you have HOA fees (if any).
If you are managing the property yourself then don't worry about the PM 10%. You should budget for vacancy and expenses. I don't use those standard percentages. People use 5% or 10%. In reality, treat your rental like a business and prepare for a rainy day. If you are cashflowing $500, don't go an spend the $500. Build up a savings account because there will be repairs that are needed.
Hope this helps.