How much can I charge for $100 profit? newbie

Question

Hi! I have a 2bed 2ba condo in Lynnwood, WA.

I am thinking about renting this unit out. Mostly I hear $100 profit per unit is the rule of thumb.

My mortgage payment is $2033.68

- principal & interest $1387.23

- escrow $282.70

- pmi $63.75

- hoa $300

in this case Do I just charge $2133.68? What am I missing here? I know you have to see what other properties are renting out for and etc but I just wanna know how much rent I'd have to charge in order to make "$100 profit per unit" people are talking about.

Thank you for your help!!

Kathy Johnson · Answer

Don't forget to check market rate in your area and factor in maintenance in your cost calculations too.

Nicholas L. · Answer

@Jaiwoo Kim as @Aaron F. pointed out, you would not usually build up to a rent price with your expenses, since this may or may not be market.  Say for example 2 BR properties in your area are renting for $1500.  If that is the case, it doesn't matter how much it costs you to carry your property - that is what it will rent for.

You can ask a real estate agent to pull rental comps for you or just look on Zillow, FB, CL, etc. for your own comps.

Aaron F. · Answer

What do you mean include hoa and escrow in rent? Very strange question.

What you charge in rent is market driven and these calculations are thing you do before buying.

A few thoughts: $1300 p&i means you owe what, 300k? $1200/year profit is under half of one percent NOI. I would try to do better than that. Maybe you make 10% on your down payment but still. Real estate is a lot of work and risk so it’s good to be well compensated for it.

To calculate profit first include a few more expenses: vacancy, cap ex, and maintenance. Search Ben leybovich for good references on how to think that through.

Kathy Johnson · Answer

You will be deducting costs on schedule E so that is where you would report the HOA fees.  Talk with your accountant about the escrow fees because they are treated a little differently than recurring costs.  You don't 'have' to include anything in your rent,  but you are running a business so if the market rents in your area allow you enough margin to cover them, so much the better.  In some areas, market rent isn't high enough when you first purchase to cover all of your costs so you end up with negative income when you are done calculating.  That can hurt you if you don't have enough other income or cash resources to keep afloat until you can start making a positive cash flow on the rental.

Andrew Kessler · Answer

I would factor in a certain % each month for capital expenditures, such as a new hot water tank, furnace, etc. If you set aside some money each month for these future expenses it will help you be better prepared for when those expenses come up!

Jaiwoo Kim · Answer

Hi Thanks for your reply! Do you know If I have to include hoa and escrow in the rent? I googled it it's tax deductible.

How much can I charge for $100 profit? newbie

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