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Updated almost 5 years ago on . Most recent reply

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Roger Schiller
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How to analyze your own house as a rental property?

Roger Schiller
Posted

My family is moving out of state and we're trying to decide whether to sell our current home or keep it as an investment property. How would I go about doing that analysis via one of the Bigger Pockets calculators? 

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Jaysen Medhurst
  • Rental Property Investor
  • Greenwich, CT
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Jaysen Medhurst
  • Rental Property Investor
  • Greenwich, CT
Replied

From the outset, @Roger Schiller, understand that many, many residential properties do not make good rentals. If your home is worth more than $130k or so, it most likely is not a great candidate. That's the point at which home values and rents tend to diverge and no longer hit the 1% rule. 

I would run two calculations: Cash Flow Analysis and Return on Equity (ROE).

Cash flow is pretty straight forward. It's simply:
Gross Scheduled Rent (GSR)
  - Vacancy (5%)
- Maintenance and CapEx (15% combined)
  - Management (10%)
  - Property Taxes
  - Insurance
=Monthly Cash Flow; I like to see $150-200/unit/month. 

To calculate ROE: [Yearly Cash Flow / Total Equity = ROE] where Equity is [Fair Market Value - Mortgage Balance]. Ideally, you probably want this to be 10% or higher. If it's down around 8% you need to give it some thought. Every month that the property goes up in value and mortgage get paid down, your ROE decreases

  • Jaysen Medhurst
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