How do YOU do break-even for buy-and-holds?

[Ingrid J.]

Hey all the way from Norway! 

I've spent the past two weeks finalizing the business plan for my buy-and-hold real estate company and have ran into a wall.

The break-even-analysis looks very scewed and I can't figure out why, or whether it's supposed to look that way. Basically my first rental will be a small two bedroom which will cash flow positively from year 1. 

Financial assumptions:

Fixed expenses: HOA (includes sewer), Mortgage, Interest on mortgage. (Set to a rate of 4% at a 25 year amortization in a regular bank), electricity (in Norway and tenants are billed their electricity bill directly from the power company. Landlords only pay a monthly fee of nettleie which is like $20 for an apartment).

I've factored outcap ex, vacancy and evictions for the break-even as I have saved up a cash reserve to cover these. The cash reserve should cover a $ 6000 Cap ex, a max of 3 months vacancy the first year (24 %) AND a hypothetical 6 month eviction. The two bedroom unit I will buy will also be purchased brand new (most likely finished in 2017) to hedge against the need of any major repairs. 

Taxes are not worth mentioning at this point, as they are very different from the US to Norway.

The numbers:

Rent per month: $ 1600

Total fixed cost per month: $1446

Variable expenses: repairs and maintenance

Total variable cost per month: $160

Results:

A break even point during the first year due to downpayment of mortgage. 

Or am I doing something wrong? I would greatly appreciate it if you have any input or some better tools for break even analysis.

[Tammy Vitale]

We bought a small shack on the water we turned into a cottage and eventually rented.  Purchase price was probably 10K more than it should have been, fix up was exorbitant because the original idea was to have it as a getaway, cash flow was negligible.  But after 16 years the equity financed the purchase of 3 more rentals.  I still have it.  Cash flow still isn't good, but I have a tenant going on 4 years who was in her previous place for 10 years and only changed to come to my cottage (it is cute and it is on the water) and she is currently covering my mortgage expenses.  Because it is small, expenses are small.  We remade it from the walls in when we bought it.  Is it the best investment/business plan?  No.  Has it worked well for us?  Yes.