Insurance is the most obvious one, but vacancy, cap ex, management fees, maintenance, etc. all should be included in the expenses.A quick sniff test for a CAP rate formula is whether the expenses are in the 40-60% range of the income.  

Conceptually I understand what it represents, I just can't figure out how to figure out that percentage...and everything I've googled isn't specific to real estate investing and uses a formula that projects beyond one year.  

Buy heavy cash flowing rentals, 2+ year of landlord experience, and 6+ month cash reserves for the monthly payments.Most banks use formulas to account for expenses (I think 30%).  

For example, a 4-plex that rents for $600/mo:ARV: $200KRehab: -$30KTrans. costs: -$5KEquity: -$15KMax offer: $150KRent: $600*4*12*.9=$25920PITI: ($720 (30yr @ 4.5%, 75% LTV) + $200 tax) * 12 = $11040Other expenses: $6000 Cashflow: $13880/year In this case your loan is 75% of your ARV or $150K.Your out of pocket is $35K and your retained equity is $15K.You may want to build an Excel spreadsheet with all these formulas and play with the numbers to see what kind of a deal you want to pursue.Nick

I am curious to anyone who went to the flipping formula 3 days seminar.

.   ^^  That formula would work 100% Oxford, Parker and Oakland between 1100 and 1300 blocks are much much nicer than you would expect. and getting better all the time. 

Has anyone heard or worked with Jason Lucchesi and his Direct Deals formula?

So if I tried to apply some formula that says I need X% for Cap Ex and x% for repairs to my whole portfolio, that may hold up over the large sample size...but it will not hold up on any one individual.Due to this fact I try to measure free cash flow.

Here are the details on a house I'd like to buy and hold; I'm using round numbers for ease:Property is 3/2 brick ranch sfr, built in early 1960's, with ARV = $100kUpdates will total $10,000Applying the 70% of ARV formula gets me to $70k, less $10k in updates = $60kOwner would like to get $75k - $80k; Rental rates are $1,000/mo on avg.Option 1: Offer $55k cashOption 2: Offer $70k owner financing, $10k d.p. to owner at closing, finance balance at 6% interest for 10 yrs, then pay off loan/refi/sell.

Of course lowering the price and repair cost would help.Please help me figure out if I'm even in the right ball park and help finish this evaluation with a proper expense formula