Cash Flow Calculations

[Mark Oliver]

I'm working on buying hold rental properties and keep running into a question that I can't get a good answer for.  Everything I read seems to emphasize making sure to accurately and completely estimate your costs up front to make sure you're dealing with a good investment, but so many people's estimates seem to simplify the costs to only recurring monthly and highly predicatable costs like taxes and utilities....etc.  In my experience though these costs are just part of the picture.  I tend to include some cost for accounting, legal, Cap-ex, evictions, turnover costs, etc.  I am working with a turnkey company as an alternative and when I asked why they leave these out of their calculations he responded that if you take all the costs into consideration you'll never find a deal.  This scares me a bit.  I don't feel I'm being crazy conservative but more realistic based on my experience with owning and maintaining properties.  Below are some of my assumptions that don't seem to be supported in the field.  Can anyone help me understand what I'm missing?  How can I give myself peace of mind that I'm not just making money today to turn around and loose it tomorrow?

My Assumptions.

- Each property will require $20k in Cap Ex updated every 20 years = $83/month. e.g. roof, hvac, flooring, kitchen, bath, etc.  If I add these all up they are more than 20k but will also not all occur every 20 years, so this is sort of an average.  I would be open to discussion as to the amount and term, but I can't see how 0 is a good assumption.

-  Turnovers will cost approx $600 each time a tenant moves out and this will likely occur on average every 18 months.  My assumptions come from discussions with property managers.

- $250 each for legal and accounting each year per property.  My overall costs are higher, but I'm assuming eventually I can spread these costs out per unit better than today.

-  There are lots of other things, but these are the big ones that eat up any.  just adding these assumptions you'll see they negate $175 per month of cash flow which kills most deals I'm seeing as it seems the best I'm finding cash flow about $200 per month without these assumptions.

Am I underestimating the value of equity and credit?  I'm not assuming much for appreciation based on what I see in the area we live in. 

Any thoughts are appreciated.

Thanks,

Mark