Do you include your occupancy to calculate returns?

Question

My real estate investment strategy over the last 10+ years has been to purchase a property everytime I move.  As a military member, I move every three years or so; hence, I have several rentals that were, at one time, my personal residence.

I've been struggling with whether or not to include my occupancy in the returns numbers.  For example, if I purchase a SFR in an area, should I include the average rent I would have paid into my calculations.  Additionally, which expenses should I include, if any.

Another strategy would be to only include the principal paydown and initial investment, but not include any other expenses in the calculation [unless of course I house-hacked, which to me is a no-brainer to include in the calc].

I think the latter is the better strategy, but would love to hear feedback from the community.

Thanks for your time.

Frankie

Frankie Woods · Answer

@Jaysen Medhurst, yes, I understand that NOI does not include debt service.  However, debt service would be included in both ROI and CoC.

My question is about investment properites purchased as primary residences for a period of time.  What is the best way to calculate a return given that you are not paying rent [someone else].

I think the best and simplist way is to treat it as if you were renting from yourself at market rates and treat all other expenses as how you would divy them up in your lease.  Also, you probably wouldn't need to account for a property management "expense" since there is really nothing to manage.

Thanks for helping me "think out loud".

Jaysen Medhurst · Answer

@Frankie Woods, there are a lot of good articles on BP about what expenses to include. Vacancy is one of those. Your debt service is actually not considered an "expense" in REI parlance.