I receive the majority of my income through Buy & Hold Real Estate and am looking for a way to calculate how much I make a year, sounds simple right? I currently own 90+ rentals and buy 20+ properties a year using the BRRRR method, where I pay all cash, fix the property up, rent the property out, then refinance it to pull my initial cash out. I also end up refinancing several older properties a year as well, finally I do sell a property once in awhile but not very often. When questionnaire asks "How much do you make a year", I would like to come up with some type of way to calculate my yearly income that can be equivalent to a W2 yearly salary.
Income
-Obviously rental income will be used for income
-Should I include capital gains from selling an existing house you've owned awhile? If you sell 1 house a year, that shows consistency, would you use that as income?
-Do you include flip income, properties you bought and sold within the same year?
-Do you use a refinance amount as income? (Start with a $30K mortgage, refinance and pull $20K cash out and now have a $50K mortgage?)
-Do you count equity that you buy into the day you buy the property? (Buy the property for $30K and it appraises at $50K. or be all into the property at $45K and now appraises at $70K)
Expenses
-Typical expenses are again obviously assumed (Management, Property Taxes, Insurance, Utilities, Interest, small repairs)
-Do you include principle pay down as an expense? Say your mortgage payment is $500, $300 is interest (an expense) $200 reduces your mortgage, is this really an expense? It's a cost you incur that year which physically reduces money you receive, but it goes towards building equity.
-Do you include larger expenses that only happen once every 10 years or more? (New Roofs, New Siding, New Windows, Appliances, Flooring)
-Do you include loan/refinance costs
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Here is the scenario that trips me up: Say I buy a house for $30K, and then I put $15K into rehabbing it. (Some long term items like Siding, Windows, Roof, some short term repairs like broken door, fix leaky pipes, patch holes in the wall). Then I refinance the property with a $50K mortgage and receive all my initial capital back out PLUS an extra $5K. The house appraises at $70K. I then rent the property out and collect $5K in rents while having $4K in typical expenses, several months after it's rented out I replace the furnace for $2,000. How much did I earn/lose this year?
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Did I just make $25K from equity? Did I make $5K from the cash received at the refinance, did I not make anything and actually have a $15K loss due to all the rehab amounts I paid for? Did I break even because I don't count equity in my yearly salary, I spent $45K on a house but received it all back in a refinance, if I don't count refinances as income I don't even include the $5K I received? Or do I simply make $1K because I don't include acquisition costs, and only look at rents? Do lose $1,000 this year because I don't include equity/refi, but do include major repairs like the furnace?
I'm very curious to see what others come up with to determine how much this house made/lost in a year to ultimately calculate a yearly income amount across all properties that I own.
