If you rehab for a rent, to caclulate cash flow its merely the difference between what your monthly payment on the note is (PITI) versus how much the property is renting for each month.
I.E if your note costs $800 per month, and the property is currently renting for $1,100 you are cash flowing $300 per month on that specific property.
Is this correct? Thanks
Did you deduct your taxes, insurance out of that.
Did you deduct your taxes, insurance out of that.
i believe that is what they meant by PITI. Principal Interest Taxes Insurance
Correct. I suppose I am correct about my original message then?
Uh, no…not even close. This is “realtor math.” Where’s the vacancy allowance, utility bills for when it’s vacant, clean up / paint / make ready for next tenant, marketing money, gas to get you to/from house to show it or fix something, repairs, maintenance, legal expenses, etc?
I think there’s lots more you need to include here.
Thats great Justin0419, thanks for pointing out the shortcomings in my post. I would like to further break down what you mentioned to get a more representative estimate of cash flow.
Vacancy Allowance- I know this will vary on geography, but on average how long does a house sit vacant?
Utility Bills when vacant: Water, heat, electric, sewage, garbage. Do you already have cable/internet hooked up for tenants typically? I am assuming no. Whatever the sum total of this is, again I realize this varies on location.
Clean up & Paint: $500 for clean up, $1.25 sq/ft for fresh paint
Marketing Money: Whats a conservative estimate for this? I would personally throw signs in the house lot, and on the streets of the area which wouldn’t cost too much. In addition, online postings
Legal Expense: Not sure what to allocate here
Maintenance: 2% of ARV of the house saved per year for maintenance?
Thanks again
Vacancy - It does vary. In my area, rental demand is high. If I find a sect 8 tenant, one local sect 8 office takes about 6 weeks to get the tenant in the unit so it sits for that long from the moment I approve their application. The other sect 8 office is much faster and the guy will come and inspect the place at any time so that could be a very short vacancy. People are generally going to have to give a 30 day notice at their current place.
Utilities - I was basically getting at hooking up and paying for electric so you can work on a unit while vacant. I generally don’t turn on water or gas while a unit is vacant. Cable/internet/satellite is on the tenants. I could care less about it as long as they don’t put a dish on my roof.
Clean up and paint - I do this myself, so it’s my time and the cost of primer/paint/supplies. I do charge dirtbags a nice cleaning fee when they abandon the house or get evicted and make me clean up their trash.
Marketing - My local want ad paper will run an ad for about $10/wk or so. Other than that, I use craigslist for free or just have people calling off HUD’s landlord list. We get calls from that list every week.
Legal - Figure money for tax preparation if you need it, money for eviction, money to enforce a judgment, etc.
Repairs / maintenance - varies greatly for me from house to house. Depends on if I’ve been in there to rehab it before or not. For example, we’re working on two houses now. One is a house we’ve owned for a couple years and fixed up before the last tenant moved in. She was a very good clean tenant so we just did a quick paint out that didn’t cost much at all. The other house is one we bought in January. The previous owner really let things go. So that one is taking a lot more money to fix up. I recommend you take a look at the 50% rule and use that as a guideline for your expectations.
I just don’t want you thinking you’re going to absolutely be pocketing $300/month in your scenario. Money with rentals is made with volume. A few rentals is a hobby or a headache.