Quote from @Tim Herman:
@Ryan Guffey Real Estate is a numbers game. You need either a intergrated calculator like on BP(can use 5 times for free) or a spreadsheet, some in the files section. Punch in the numbers and it will show you whether it will make money or not.
What numbers to use? Divided into hard costs(known) and soft costs(unknown).
Hard costs are reasonable known: taxes, insurance, principal and interest. If the landlord pays utilities that should be included or an HOA. These are recurring costs.
Soft costs are costs that crop up when you least expect it, lol. Repairs to an appliance or clogged toilet. My minimum is $50 per month or 5% whatever is greater. Vacancy or tenant turnover. I analyse at 8% or 1 turnover per year. I know some use 2% which is the equivalent of 1 turnover every 50 months. How about those landlords that can't evict because of the moratorium(6+ months) To get back to 2% vacancy they will not be able to have a turnover for 300 months. 6/300=1/50 or 2%. Capex the silent killer of newbs. Everything wears out and there is an approximate number for each item. I use 10% or a minimum of $100. These are some examples of timelines where each item wears out. Roof 25 years, appliances and hot water heater 12 years, hvac 20 years, floors 10 years, etc. Assume a new roof costs 5k. $5000/25 year life span/12 months in a year=$17 per month if it is brand new the day you purchased it. Say the roof is 15 years old. The effective life span is now 10 years. $5000/10 year life span/12 months in a year=$42 per month.
Although this post is 3 years old, it was a clear cut and simple explanation/breakdown that new investors (such as myself) can easily grasp and apply. Thank you Tim!
