Hi. I’m thinking about renting out a home, but am having trouble crunching the numbers. can anyone help. If i charge 650/mo and my mortgage is 252, plus a pmi of about 40, and yearly taxes of 2000, plus a manager fee of 65/mo, will i make any money at all?
P-nutty…
Here are the numbers:
Income:
– $650 per month ($7800 per year)
Expenses:
– P/I = $252 per month ($3024 per year)
– Taxes = $167 per month ($2000 per year)
– Management = $65 per mopnth ($780 per year)
– Maintenance = ? (Est: $50 per month, $600 per year)
– Insurance = ?
– Vacancy @ 5% rate = $32.50 per month ($390 per year)
You should have a positive cash flow of about $83.50 per month ($1002 a year) before paying insurance and I would NOT venture a guess as to your insurance cost…too many variables involved! I pay about $250 a year for each of my SFH.
Hope that helps.
Keith
BTW – (just my two cents) even if you plan on using a management company, you HAVE to understand this stuff going in!!! KDH
bout 100 per month…maybe little more…but you wont make much if there is repairs like a new roof…water heater…ect.
Actually, Black, it’s even thinner than that…there was no amount for maintenance, vacancy, insurance, etc…
There is probably about $50-60 a month positive here…
Keith
Thanks for your help. Is this scenario even worth it? How much profit do you look for each month?
Personally, I look for at least $125 per month ($1500) a year. I think you can get there on this one…drop or reduce the management, try to keep the insurance down, etc…
Keith
thanks for your help. this message board is the greatest.
You’re welcome…yes, this forum is great!
Keith
Maybe I am stupid but if you’re charging 630/month and you’re only calculating vacancy at 300ish a year wouldn’t that be assuming you have half a month vacancy for th entire year?
Vacancy calculation seems to be the biggest "guess’ when it comes to calculating monthly income. You must have put a huge chunk down to get a small mortgage payment like that! :o
With 1 year leases, you should only turn over 1 time per year max…here in this area, I could have a vacancy rate of less than 5% as long as I get the required notice from the tenant that’s leaving!
I need to turn the house over (paint touch-ups, carpet cleanings, etc.) in two weeks – not a problem at all.
Keith
Why have a management company do it for you? why not do it yourself?
The 5% is not spent but I put it in my calculations because someday I will either:
(1) hire a management company and go trout fishing in Colorado with “reoconsultants”, or
(2) quit my job, get paid something to manage properties, and go trout fishing in Colorado with “reoconsultants”
For now, I do the management myself and the 5% is put with the reserves, set aside for the property.
Keith
That is the way to do it imo kd…I always account for management expenses and total cost of maintenance (ie what i would have to pay someone else) regardless of whether or not i plan to do the work myself. If you don’t take these into account you are essentially saying that your time is worthless!
When I was crunching the numbers for this one house to determine my offer, my realtor had indicated that i didn’t need that much for maintenance repairs since I was doing the work myself…I told her that actually i was giving the seller a break on my labor cost - lol. Basically, just because you do the work / management yourself, doesn’t mean it isn’t an expense that should be ignored when determining your investment parameters.
I like your logic!
Phil
I use the concept of "What if for some reason, I am unable to manage the property for 6 months (sickness, injury, fishing trip to Colorado with reoconsultants, or whatever…)? Would I still be able to cashflow the property? If I HAVE to get someone to mange it, I need to make sure the budget is not so tight that I can’t…
Keith