The Most Important Formula for Rental Properties
When it comes to investing in rental properties it is important to know the metrics that determine whether your property is likely to be profitable.
The Formula You Need to Know
Below is the simple formula to determine your operating costs which then allows you to figure your net operating income (NOI).
It what I use to make sure I "buy right" as I like to call it:
Knowing which items going into you operating expenses is vital. The ones in the above formula are mainstays and should always be included.
If a rental property won't cash flow on paper, then why assume it will magically cash flow in real life.
I do my best to follow the numbers and leave my emotions out of it. Easier said than done at times.
Published by ScaredyCatGuide
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thanks for the effort, liked your blog 👍
any thpughts on STEEM and recent policies?
sbd printing again... many whales power down....
I did a price analysis few days back: https://steemit.com/crypto/@scaredycatguide/steem-stuckinatradingrange-18pqrogfqx
I've been on the platform since July 2016. I feel like whales have been powering down since the day I got here. A for the policies, I really haven't had much faith in "mgmt" for quite some time.
The community and having enough SP to be noticeable are the main reasons I have not diversified more. It is out community that will be the main driver of steem appreciation.
Probably will talk about this more on my next Scaredy Cat Investor show on MSPWaves Radio. Tuesday at 3pm EDT. You can listen and join in audience chat here: https://discord.gg/ZvwASjs
I am sure you have shared before but how do consider remodel or repairs when you first take over the property or recondition after a rental? If this takes a large upfront expenditure, what should be the payback time on it? Thanks buddy!
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You typically fix the place up, and then rent it, and then refinance it.
You refinance it to pull all of your capital back out of the place.
And so, you look at the costs of repairs as part of the cost of the house.
Now, if you are talking about the previous tenant smashing up the place, that is what insurance is for.
I factor in my rehab budget in my initial calculator to see what my true cash on cash return will be.
So for instance, downpayment money plus rehab costs is my money in, so that divided by my NOI gives me my cash on cash return.
I let my online calculator do all the work: https://scaredycatguide.com/rental-property-calculator if you want to use it.
I remember all during the 80s people trying to talk people into buying places to rent, that wouldn't positive cash flow.
They said, you will make it up with the equity you build up.
Jingle mail, jingle mail, jingle mail rock...
Suckers! ;-)