Mortgage vs. expenses in Analysis

2 Replies

I am just starting out as an investor. It seems when I run numbers on a potential deal, the month to month expenses are a bigger issue than the mortgage. What I mean is when I run numbers as Brandon Turner suggests, I need to alter the price of the property a ton to have it make a deal work. I'm able to get the numbers to work quicker if I'm able to add value to the property so I can increase rent or somehow reduce month to month costs. The expenses vs. income seems to be a bigger issue than a change in the cost of acquiring the property. I'm open to any thoughts from others on this topic. Is there something I'm not considering?

@Kevin Rollins
In properties under $100k your expenses will be greater than your debt service most of the time, especially if the tenant is not paying utilities.

You are probably correct which is why it is difficult to find cash flowing properties on MLS.

Your assumption is also correct where you are better off finding a property that has value-add such as Rehab and increase in rent- as a Rehab will lead to lower maintenance and capex costs

You're on the right track - if you can add value to increase rent, or reduce expenses, both are effective in increasing the value as an investment property (increased cash flow).  You would measure your cap rate without accounting for financing, because obviously the expenses change if you have an 80% loan vs no loan at all.

Ultimately, if the deal cannot be made to work with the expenses you've got (or can project, if you see opportunities to reduce) and the financing you can get, the deal may not be good for you.

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