New from Boulder, Colorado!

[Alicia Katnik-Canney]

Hi! My name is Alicia and my husband and I just ventured into the world of real estate investing. We are a young couple with a growing family. We just went under contract on our first deal . . . excited and a little nervous. I can't wait to learn more through this community!

[Jon Holdman]

A simple formula for true cash flow is (rent / 2) - P&I payment. That will give a significantly different result than the cash flow = rent - PITI formula that's often used. I see you have included HOA and maintenance. Other items to consider are vacancy (even it its just a week or two between tenants), utilities (at least when vacant), make ready costs (cleaning, minor fixup between tenants), advertising, and tenant screening. There is also property management. That's typically 10% of collected rents plus half a month's rent to fill a vacancy here in Denver. Then there are the occasional, but big capital items. For a SFR, this is things like roofs and sewer lines. With an HOA, these turn into special assessments. Then there are the ugly things like a lengthy eviction or major tenant damage.

With one rental you may get lucky and avoid those expensive items. But with a portfolio of even 20 properties you'll be replacing a roof (or its HOA equivalent special assessment) every year. And a furnace. And a sewer line every other year. And you'll do an eviction or two every year and one of those will be nasty every year or two.

That's all encompassed in the "50% rule" that says expenses, capital and vacancy will each 50% of your rent. What's left is used to pay the P&I and your actual cash flow.

Now, if you do the property management and minor maintenace yourself, you can earn a significant chunk of that back. Something like 10-15% out of the 50%. And if I spend two hours dealing with some minor maintenance issue rather than paying someone $100 to fix it while I watch TV, I'm ahead. But you are doing a job to earn that money.