Run the Numbers

[Jorge Vazquez]

When considering investing in a property, it is essential to have a clear understanding of all the expenses that come with it. To begin with, create a comprehensive list of expenses, including taxes, maintenance, utilities, advertising, other operating expenses, and financing. It's important to note that some of these expenses might be variable, while others might be fixed. Variable expenses, such as maintenance and advertising costs, can fluctuate based on the property's age, size, and location. Fixed expenses, such as taxes and financing, are typically constant throughout the year.

To calculate the total cost of ownership, add up all the expenses and subtract them from the annual rental income. This will help you determine if the property is generating positive cash flow and is profitable. It's important to set the rental income rate at a rate that will attract and retain renters. This can be achieved by researching the rental rates in the area and determining what the market will bear.

In addition to the expenses mentioned above, it's also important to consider other costs, such as property management fees, insurance, and legal fees. Property management fees can be a significant expense, but they are essential to ensure that the property is well-managed and maintained. Insurance is also critical to protect your investment from unforeseen events such as natural disasters or damage caused by tenants. Legal fees may also be necessary to ensure that all contracts and lease agreements are legally binding and protect your interests.

By taking a comprehensive approach to understanding all the expenses that come with owning an investment property, you can make informed decisions and be confident that your investment will generate positive cash flow and be profitable.