Dallas-Fort Worth Real Estate Investor Club

How do you figure cashflow?

  • 25 Jun 2014 6:48 PM
    Quote
    Message # 1563001
    Michael Mixon
    I know this seems like a really simple question, but I've seen alot of different formulas for figuring this.  I'm looking at a house right now with the follow numbers:

    Rent: $850 a month
    Insurance: ~$100 a month (guessing)
    Taxes: $75 a month
    Payment (owner carry): $475 a month

    Going just off these numbers, one formula calculates cashflow at $200 a month.  But other's I've seen recommend figuring in Vacancy, Maintenance and Management, which they recommend estimating as 25% of the rent, which would be $212.  If so, the cashflow goes to -$12.  So, I'm confused on whether this is a good deal or not.  Please help, thanks.
  • 25 Jun 2014 11:23 PM
    Quote
    Reply # 1563018 on 1563001
    Robin Carriger (Administrator)

    The simple question is "Will you have to pay Vacancy, Maintenance and Management?"  If the answer is "Yes," which is a fairly safe bet, then your cash flow calculation needs to include deductions for all of them.  BTW, my deduction for all of those expenses is closer to 30% of the rent than 25%.

    Thanks,

    Robin
  • 26 Jun 2014 8:02 AM
    Quote
    Reply # 1563054 on 1563001
    Michael Mixon
    Thank you Robin, I was thinking the exact same thing.  But I heard a guy on the radio the other day, saying he only sets aside about $100 a month, per house, for vacancy and maintenance.  I thought that sounded low, but he did mention that he rehabs all his houses after closing, so maybe that cuts down on maintenance enough to allow those numbers.

    Unfortunately I'm not in a position to buy fixers and rehab them.  My credit is horrible, and I have yet to find a long term private lender that will loan based on cash flow instead of credit.  I'm worried I'll only be able to buy on Owner Carry loans for the time being, specifically I'll be targeting currently occupied units of tired landlords with the hopes of pulling in some cash flow before the current tenant vacates.
  • 27 Jun 2014 10:55 AM
    Quote
    Reply # 1563129 on 1563001
    Tony King
    Here is the formula we use. Hope it helps:
    Pro Forma: Tony King   No Vacancy   Vacancy
    Gross Rental Revenues  $   15,600  $   15,600
       Less: Vacancy 0%   8%  $    (1,300)
    Net Rental Revenues  $   15,600  $   14,300
    Less Property Taxes  $     2,350  $     2,350
    Less Insurance   $        595  $        595
    Less R&M  $     1,560  $     1,560
    Less Utilities  $            -  $            -
    Less Legal & Professional  $            -  $            -
    Less Janitorial  $            -  $            -
    Less Landscaping & Extermination  $            -  $            -
    Total Expenses 29%  $     4,505 32%  $     4,505
    Net Operating Income 71%  $   11,095 68%  $     9,795
       Addbacks:  $            -  $            -
    Available for Debt Service  $   11,095  $     9,795
    Debt Service:   $    70,000 15 Year Amortization
       Proposed Debt Service @ 5.25%  $     6,753    $     6,753
       DSC           1.64           1.45
       Net Income  $     4,342  $     3,042
       
       Proposed Debt Service @ 7.250%  $     7,668  $     7,668
       DSC           1.45           1.28
       Net Income    $     3,427    $     2,127
    Home Sales Price (Incl. Repairs)  $  100,000  
    Loan Amount    $   70,000 70%
    Cash Down    $   30,000 30%
    Square Footage           1,300  $      76.92
    Rent / Sq. Ft. / Month    $           1  
  • 27 Jun 2014 7:54 PM
    Quote
    Reply # 1563157 on 1563001
    Michael Mixon
    Thank you Tony.  It looks like most investors are factoring in 15%-20% for repairs and maintenance, so I'll do the same.  I'm starting to realize exactly how little is left for debt service if you don't buy well below market value.
Powered by Wild Apricot Membership Software