Anything Missing in Cashflow Calculation?

6 Replies

I've only purchased a single family home before; and that was rented to family. I sold it and I am looking at putting some of those funds towards a cash flow property. I am looking at North Las Vegas duplexes at around $130,000; and assuming I can rent out each unit for $600 per month each, I am trying to figure out if I have any errors in my projections (used the BP Excel to calculate cashflow):

I based the other numbers at what seems to be average North Las Vegas zip code at that price.

Thanks in advance!

Hi @Yan Huang

I think your analysis looks pretty solid.

Maybe look to increase Vacancy cost and factor in property management  as well. At some point I would imagine that you would not be set managing.

Hi Yan,

It looks like you've analysed everything well. I just wanted to know if you're happy with the results. Cash on Cash return of  6%.  Cashflow of $166 per month. Cap rate 6.9%

Howdy @Yan Huang

You are leaving key numbers out of your analysis. Property Management should always be included even if you plan to self manage (your time is worth something), 10% or $120 per month. CapEx reserves should also be included (10% or $120). Major repairs will eventually be required (roof, HVAC, new appliances, etc.). You did not indicate the condition of the property or if any rehab would be needed. Vacancy at 2% is extremely low. I would use a minimum of 8.34% ($100) which equals one month per year ($1,200). You really need to try to stay conservative with the numbers and not leave out or fudge them to make a deal look good. You are showing a monthly cash flow of $166.25. Where as if I were analyzing this deal it would be negative (-$113.75). This is not a good deal to me. Remember, although we include the PM, Vacancy, and CapEx in the analysis in reality you may not need to use them. But, they must be included just in case they are needed.

Don't trick yourself. The only loser will be you.

Here is the formula:
PGI--potential gross income
-VCL--vacancy and collection loss
=EGI--effective gross income
-OE---operating expenses
=NOI--net operating income
Now, I believe you are too conservative in your expenses which means your returns will probably not meet your projections. If you assume 1 month vacancy/year that is about 8% vacancy rate. Factor that in. If the property is not vacant that long, your income will be better than projected. Add in ALL your potential expenses and as another poster stated, include PM. If you end up with lower expenses, your income will be better than projected.
Once you have your estimated NOI, then subject debt service. Also subtract for CapEx for projected actual income after debt service. This should give you estimated taxable income. Be sure and then take depreciation to have a better idea of net taxable income.

Whatever you do, figure conservatively (in other words, make sure your estimates for operating expenses, etc are correct). If you do so, your NOI and BTCF will be more realistic giving you a better picture if the opportunity is worthwhile or a loser. If you calculate correctly and your NOI comes in stronger, that is just a bonus. The number won't lie and will tell you if you should do the deal or not.

Deal looks really tight considering that's likely to be a high upkeep part of town.

You must include property management.

your vacancy is too low

you need to pay for CapEx

Your expense for utilities seems low at $150/year.  

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