Rental Return on Investment (ROI) Question

[Ryan Moore]

For calculating ROI on a rental property, I assume my closing cost to be part of my initial investment number. On my closing costs, I paid 1 year's insurance, 1/2 year taxes, and some HOA. Normally those are part of the operating expenses, thus impacting the cash flow numbers.

So do I not include those in my cash flow numbers for the first year of operations since they were paid upfront?  

For that year, I ended up booking those expenses on their respective line items in my P&L.... should I have not done that and left them off operating expenses all together since they were paid at closing?

Thanks

[Joe G.]

A few thoughts: 

I would book them on those respective lines. Although they are paid at closing, I wouldn't consider them as closing costs -- it just happens that some operational costs were paid at closing. This will be very helpful in analyzing actuals year over year and updating your proforma. Capturing these costs accurately will also help if evaluating operational costs (such as insurance) down the line to see if you can shed some of those costs and increase the value of the investment or improve cash flow. Good Luck!