Typical analysis considers the following expenses of which some can be variable based on the age, location, and quality of home with the amenities it offers. These general expenses are a typical part of every investors calculations:
1. Taxes Note: If a HOA (Homeowners Association) is involved, some of these fees could be included
2. Insurance Sometimes a utility or insurance may be included, so do your due diligence to under-
3. Maintenance your true Net figure.
You will generally see these across the top of a spreadsheet along with age, br/ba, sf, occupancy, address, zip code, county, PIN, among other categories of information. The more comprehensive the database, the easier it is to use to analyze the details using several metrics.
Take a few minutes when looking into an area/city that you want to invest in. I use Wikipedia for a quick reference to review the demographics; employment, population, and trends. Get familiar with it and when interviewing your management, it would be good that they are aware of what is happening in the big picture as well as the day to day operations.
Measuring the returns:
Take your monthly rental $600.00 X 12 = $7,200 total income (1 hm. typical 2 or 3 bedroom depending on area)
Taxes $750.00 Net Income $4,420.00 /.10 (10%) =$44,200.00 Price
Insurance 350.00 Net Income $4,200.00/.15 (15%) =$29,467.00 Price
Mngmnt 10% 720.00 Use the figures above as your cash on cash return.
Maint. 5% 360.00 You will also benefit from tax deferred depreciation
Vacancy(1 mn ) 600.00 not noted here.
_____________________ Divide your total investment amount by the price that will
Total $2,780.00 Net Income = $4,420.00 give you the return you are looking for.
You may run into markets where there are more buyers
at that rate and the prices will be going up. That is what
happens with every popular investment and a good reas-
on to quietly assemble as much as you need up front be-
fore a good thing is gone.