Is my cash flow projection way off?

[Steven E.]

Hi all -- I'm trying to build out some kind of cash flow projection formula for analyzing properties. I'm looking in Grand Rapids/Holland/Muskegon/Kalamazoo MI.

For simplicity's sake, assume a $100K property renting for $1000/mo:

• $400/mo for a 25% down, 30-year mortgage with 5% interest
• $300/mo for PM/vacancy/repairs/CapEx (30%)
• $250/mo for property tax
• $50/mo for home insurance

Expenses = $1000/mo

My first thought was that property taxes looked pretty high. Non-homestead millage rates are around 50-55 in Grand Rapids, whereas in Kalamazoo/Holland/Muskegon they're around 60-66. With a tax assessment ratio of 50%, that puts property taxes between ((50000 * .05) / 12) and ((50000 * .066) / 12), or $208 and $275 respectively. Is my math off?

Cheers

[Account Closed]

Originally posted by @Steven E.:

Originally posted by @Shera Gregory:

Hi @Steven E. - I'm not in MI so I can't speak to the property tax calculation but for the one lump sum you have for Property Management, Vacancy, Repairs and CapEx I think it's better to break those down separately.

Property Management - assuming 10% of rent each month plus 50% of one month's rent for every new tenant and an average of one new tenant every three years that comes to $114 per month.

Vacany - 8% is conservative since that equals 1 month out of every year. I would use 4% since it can take longer than one month to get a new tenant in place even when using a PM. So that's $40.

Repairs - I prefer to use a flat rate, not a % of rent. In my market for the types of properties I purchase $50 per month is good.

CapEx - This one is tricky. You do need to include something for CapEx reserves - so far so good. The amount per month can vary a lot -- are you trying to seriously build up enough reserves to cover all the major components that will need to be replaced over the next 20 years or so? If that's the case then you can do the math to see what those costs are along with the expected life of each item. Even more accurate is for the particular property -- roof may last 5 years, need to paint the entire outside every 8 years, etc. You can see from my paint the outside example that I consider CapEx to be "big expensive stuff" not just what is literally capital in the IRS definition. These calculations can come up to over $200 per month pretty easily. In general I use somewhere between $100 and $150 per month with the additional assumption that I have funds to cover things that need to be done sooner so I'm not relying ONLY on these set-asides but using it more for the overall cash flow calculation.

So with my approach that one lump sum would be between $350 and $400 per month.

Excellent that you are running your numbers in a logical manner!!

Thank you Shera for your awesome insight!

 @Steven E I did a spreadsheet for my Turnkey Investors from California that might help you put yours together. There are a lot of variables and benefits that you may have overlooked: Take a look at the items on the spreadsheet to make sure you include that which applies to your scenario. Here it is

http://passiveincomegrowth.com/wp-content/uploads/2019/11/Investor-Turnkey-N-23rd-Ave-Nov-24-2019-.pdf