Before buying, estimating cash flow & expenses on MF properties

[Nicholas Judd]

Hello BP, it's my first post so go easy on me. 

How do some of you estimate what a property will cash flow and what your expenses will be before you buy? Is there a formula or perhaps a "rule of thumb"? 

I'm currently active duty and wanting to use my VA benefits to purchase a four plex but before going into it, I want to understand how some of you get your numbers. I don't want to be naive and just calculate rent and mortgage. What are expenses that are often over looked?

[Andrew Johnson]

Nicholas Judd Others have hit on some of the key things, my additions would be:

1.) Look at "life expectancy" of capex areas like roof, HVAC, etc. It's easy to stomach a garbage disposal, water heater, etc. with monthly income but may be harder for an HVAC system replacement. If you have 2 years of life left in a roof that's a real (major) expense that is coming due and your net income won't cover it so you have to factor that in. Stuff like that doesn't show up in a calculator or spreadsheet because it's property specific. Nevertheless it's real!

2.) If you buy out of the area (even if you have a PM) you'll want to visit the property. Plane tickets, hotels, car rentals, food, etc. all add up. It doesn't take look long before your "check-in" trip costs $2K. If you buy a rental (as many do) that cash-flows $200/month that check-in trip costs you 10 months of cash-flow! Again, it doesn't show up on spreadsheets but it's a real expense even if it's just once a year.

Hope this helps.