Rental Income ROI

[pb4uski]

Conventionally you would take timing of cash flows into account as well and calculate the discount rate that causes the present value of the cash flows to be zero, also known as the internal rate of return.

Also, since depreciation is not cash flow, depreciation would not be included but the tax benefit of depreciation would be included in the cash flows since it results in a savings in taxes.

 

[VFK57]

As others have said, I'd buy more if I could get 8%. That was always my minimum number and over time that has gone up with rent increases to where I'm now at 9.7% with conservative expense estimates.

Which brings me to the issue of your estimates. You are estimating only $3k/year in expenses? That seems really low to me.

I always figure in 3-5% for vacancy
I figure in $800/year for repairs/maintenance per property and these are townhouses where the HOA covers outside maintenance. This week I put in a $2k furnace and an $800 water softener at different units.
I figure in taxes
I figure in a $150/year landlord insurance policy for $1M in liability coverage
I figure in a $100/year budget for possible evictions - never had one luckily
Many cities have a rental license that I have to pay for as well - around $50/year
I also have HOA dues which cover things like lawncare/snow, garbage, water, insurance and outside maintenance.

Your numbers seem low in other words.

As an example, I have one unit that rents for more than yours at $1,290/mo and I figure that I only clear about $9,800/year.

+1. I have higher rent from a small 2br townhome but higher expenses as well. Your income must be counted only after your expenses. 3 to 4% is normal for CA.

 

[Senator]

ROI Calculation...

I just figure how much I put into the building, including down payment, fix up expenses, etc. You should also figure holding costs while you get it rented.

Divide the above number into the net rents, after all expenses. The expenses include management (7%), vacancy (5%) and maintenance (10%).

Cash needed to purchase / Rental Profit = ROI