Buying MN Investment Property with Cash Flow, Another Thought
17 February, 2008
(6) Comment
In December, I wrote about how I was surprised that anyone would consider buying an investment property with little or negative
cash flow. I think new investors make the mistake of assuming that your cash flow is simply your rent minus your mortgage payment. Let’s take a step back and make sure we are talking about the same cash flow:
Your property expenses are made of many of the following items (and others that may be specific to your building):
- Property Taxes
- Insurance for your Investment Property
- Water, sewer, garbage (depending upon your city)
- Heat and electricity either for the common areas or if you as the landlord is paying those bills
- Snow removal, lawn care
- Repair and Maintenance (only materials if you are doing it yourself)
- Property management
- Vacancies (this is one of the biggest areas that landlords forget about)
- Turnover repairs and updates (some of this may be charged to the outgoing tenant as damages, but what about painting the unit?)
- Advertising costs for that turnover
- Homeowner Association Fees if you are in a townhouse or condo
Only by including these items can you truly analyze your investment property cash flow.
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Categories :
Buying Property
Vacancy is certainly a factor especially for a first time investor. I bought a home on 12/27/07 could have rented it on 1/15/07 to questionable tennants, had a business trip that caused me to not show the property until 1/24/2007 then the ones that finally qualified wanted to move in 3/1/2007. We settled on 2/15/2007 so I missed 50 % of a mortgage payment to get a properly screened tennant. Based on your blog my lease ends on 5/31 so hopefully my next go around will be easier and with a higher rental rate.
Hey John-
Good tenants are worth the wait. Like you found out…you can keep you place full 100% of the time if you are willing to take anyone. But I would argue it will cost you more in the end on evictions and repairs to take questionable tenants!
Nice thing with the 5/31 lease end is that you should have some time to get it rented.
Don’t forget HOA fees. Those can get hefty. And if you are self-managing there are advertising expenses.
Great job.
Oops. You are correct Chris…Even the “expert” forgot the HOA fees. I figure the advertising expenses as turnover expenses or corporate fees (like CPA charges), but you point is valid.
Thanks!
Scott, My intention was not to show you up!!!!
You are fantastic at what you do and it is appreciated.
How very true Scott!! As landlords, there are so many expenses that can sneak up on us. Important to have someone who watches the books closely to see what is coming in, and what money is going out.