Because you could possibly find a new tenant relatively quickly.However, if it is not in the best location, and there are a lot of vacancies in the area, and the building is very old/not in great condition, I would advise against investing in that property.

Larthsa,To figure cash flow, you list all of the monthly expenses, Principal and interest, taxes and insurance, add in any utilities, HOA fees, etc,,,then you need to figure out a fair figure for "reserves', this is a hold back amount for the hot water heater breaking etc,,,then figure in a percentage for vacancy (most will use around 5% if its easy to lease) if your going to have a management company manage, their fees,,then add,,,take the final figure and take it from your monthly rent, and you SHOULD have your cash flow (if I missed anything anyone please chime ini)If you want to figure your "cash on cash" return, figure out how much you will end up in the deal for in cash (deposit, rehab, closing cost paid in cash etc, all expenses you will pay in cash), thats your total "cash" in the deal,,now see what your annual cash flow from the property should be, divide that by the cash you have in the deal, and you should have your cash on cash.You can do this with a simple spreadsheet, it makes it very easy to look at deals, but remember, these numbers are only right IF the estimates you put in are right,,,including the anticipated rent,,too many new investors tend to under estimate expenses and over estimate rent.andy

Make sure you buy a policy that handles vacancy as most regular policies will start to have issues after 60 days.

When you factor n 20% for maintenance and another 10% for capital expenses to go along with 10% for the property manager and 10% for vacancy, what kind of cash flow do you have leftover?

The property also contains a two-car garage and a single family, wood frame, 1000 square foot home.Breakdown:Price $141,0004 Apartments (2@650, 1@575, 1@500), 1 SFH (850)Gross Rents - $38,700 - 8% Vacancy = $35,604Expenses - RE Tax ($2800) Maint ($3000) Reserves ($1500) Utilites ($2400) Property Mgmt. @ 7% ($2492.8) LawnCare ($833.33) Misc. ($500)TOTAL - $13,526.13 NET INCOME - $22,077.87Cap Rate - 15.3%I made an offer on this property in January of 2012.

Appraisers will automatically take about 5% of the gross income for anticipated repairs, and another 5% for anticipated vacancies.

@Pam Rice it looks like your assumptions bring you to ~12% cash ROI if it's rented with zero vacancy assumption.

Not sure if I am being overly cautious but here are the numbers I am currently looking at:$74,000 purchase price ($71,000 property with $3,000 toward closing costs)$12,600 gross annual rental income or $1050/mo or 1.4% of purchase price ($13,800 potential w/ $1,200 vacancy cost)$8,100 Total Annual Operating Expenses ($1,000 taxes, $3,000 insurance, $1,000 property management, $1,800 repairs and maintenance, $300 Utilities, $500 lawn & grounds keeping, $500 miscellaneous)$5,082 Annual Debt service (20% down, 6.5% interest rate, 20 year amortization, $56,800 total loan Amount)This leaves me in the red with an annual cash flow of ($582).If I instead use your method I would have $12,600 annual rental income - $6,300 total annual operating expenses - $5,082 annual debt service (used my number because these are the current terms from my lender) = $1,218 positive yearly cash flow.After reviewing this, I guess my questions are...

If you have to get a leasing agent involved then you can tac that on to your vacancy period.

Hi everyone. 524 N Robinson Harrison, AR 72601 (If you google it, it has been repainted and has a new roof) Purchase price: $28,000 / Closing costs $500 / Remodel costs $2500 / Loan will be $0 down (leverage), 20 year @ 5% ($185/mo) / Taxes and insurance $100/mo / Expected rent $475/mo / Vacancy rate and maintenance: who knows I thought it looked good, but can y'all help me crunch those fancy numbers?