Cashflow analysis question (Mike!)

I have a question about using Mike’s method of subtracting the mortgage payment (P & I) from 1/2 of the gross rent because %45-%50 of gross rents are operating expense (which includes Tax and Insurance).

Does the %45-%50 operating expense factor in vacancy rates?

Beyond this, I also know that I should look for rents that are equal to %2 of my purchase price… are any other high level factors I need to be aware of when looking for rental property to purcahse?

Thanks in advance.

Yes, Mike’s formula does allow for vacancy in the 45-50% rule.

If you guys are looking at a property and it doesn’t meet the 50% rule (by just estimating) for the property to cashflow-- do you even waste your time finding out the true expenses?


How are you going to determine the actual expenses? How many evictions will you have this year? Will a tenant sue you this year? How many months of vacancy will you have this year? Will a tenant do a lot of damage to your rental this year? Will your rental be vacant during the winter, requiring you to pay for utilities?

I think you get the idea!


Thanks for the input guys.