Best Way To Calculate Landlord Fees and Determine True Cash Flow?

[Account Closed]

I am in the process of purchasing my first buy and hold investment property.  I have used the BiggerPockets analysis tools, which are helpful, but I'm confused on how to calculate true cost of owning a property.  I don't really know what the "50% rule" is actually covering (i.e. does it include mortgage and taxes, etc...?) and I'm not sure what costs I should be adding.

For example, suppose a property generates $3000 a month in rental income.   Tenants pay utilities.  Obviously I need to subtract mortgage, interest, taxes and insurance from the $3000, but how do I estimate additional costs that I will have to pay?  I can think of things like snow removal and occasional repairs, but is there a standard percentage that can estimate what that typically costs?  

Using my example, suppose I generate $3000 per month.  Mortgage P&I is $1800 per month and insurance is $100 and taxes are $300 per month.  Without considering anything else, cash flow is then $800 per month.  But what else should I add for my costs?  Perhaps assume maintenance costs are equal to (i.e. 20%?) of rental income?  Is there a formula?

Thanks.

[Nathan Emmert]

As to the "best" way... look at the actuals and analyze them.

What did he pay for water the past 2 years... gas... electric... property insurance (call and get some quotes)... how about taxes (are they trending up or staying flat, can't they be re-assessed?)... was he paying for snow removal and grass cutting?  How much vacancy or non-payment did he have?

Now... can you manage the property better? Was he over-repairing the units? Was he charging too little rent and not bringing in enough income? Was he charging too much rent and driving high turnover as people moved to greener pastures? Are there updates you should to? Did he recently eat a big CAPEX repair for you that'll allow you to budget a bit less now?

After that, right all the numbers down and see if the deal makes sense... or at what price it does make sense.  There's your offer.

Things like 50% for expenses and 2% of sale price for rents are just rules of thumb for ultra quick analysis.  50% doesn't hold true in a lot of areas or on a lot of properties... 2% isn't needed in some areas to get great deals.  You'll have to modify your approach as you mature in the process.