Confused Baby Investor

[Miya Jones El]

Greetings Bigger Pockets tribe. I recently picked up David Greene's BRRRR book, started reading and am a little confused 🙏🏾😊. I was hoping someone could clarify something for me.

In his explanation of how to calculate the ROI it seems pretty simple. I understand the formula itself, (monthly cash flow × 12) / money invested = ROI. How do you determine monthly cash flow if you don't yet have the property?

I'm Miya btw 😊 Pleased to meet you all.

[Brad Hammond]

Hi @Miya Jones El, welcome to the BP club, you are in great company!  Congrats on doing some research and figuring out how to move forward, that is the hardest part believe it or not.  

As far as coming up with monthly cash flow, you are going to have to make some assumptions about the property so the key is to get as close as you can, knowing it won't be perfect.  On the income side, find out what the rental comps will be on the property you are analyzing.  Do this by looking at other comparable rentals in the area.  From there, you will subtract all your expenses.  This would be your mortgage (which you will need the after repair value of the home to calculate), taxes, insurance, and utilities.  Don't forget about allocating money to vacancies, maintenance, and cap-ex (usually 5% each).  Once you have all the expenses, subtract it from the income and you have your cashflow.