Cash flow on rentals

5 Replies

When discussing cash flow/month (not CoC) do you include maintenance repairs and vacancy in the calculation? If so, how much for each?

I count those items, and the amounts really are looked at by the age of the property, any deferred maintenance, market vacancy rates etc...

Originally posted by @Victoria S. :

When discussing cash flow/month (not CoC) do you include maintenance repairs and vacancy in the calculation? If so, how much for each?

Yes. I use the 50% rule even though I self manage. I go ahead and account for 10% Property Management because I do not intend to manage them for forever.

Vacancy would be more dependent on your location but I just use 10% to be safe. Mine is less than that though. I also take out 10% for general maintenance and 10% for big time capital expenses such as a new HVAC, roof, etc. 

I do:

deduct the mortgage payment for the property

After variable expenses 5% , capital expenses 10%, vacancy and insurance 6%.

Percentage is of the total rent collected.

The remainder from the rent should be my cash flow. My numbers or calculations may be a bit rudimentary though. 

I'm good with a hammer, but bad with financial statements and numbers.

@Victoria S. So here’s your challenge: My vacancy where I invest won’t be the same as where you invest. I use 8% for modeling and it’s a little lower (hovers between 4%-5%) but I don’t know Overland Park nor do I know where you want to invest.

As for maintenance, I’ll just say 5%-10%. Again, I get my numbers from T12s and the risk adjust them up. I also look at the age of the property, how durable the finished are, etc. If your unit is all carpet and my bottom floor is stained concrete...well...our costs will be different. It’s a small difference but then start looking at brick vs. siding and 100 other small variables.

So the net result is that we can all give you what metrics we use but they could be off a huge amount.

And don’t get me started on utilities if they are owner-paid... 🤣

When projecting expenses always add a factor to account for unexpected expenses. I would set up the numbers in excel and stress test my assumptions (i.e. run scenarios with cost being 10% to 50%+ more) and see if I can take the loss. If not you either find another deal or structure it it to save you money.

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