Step 2 - Calculate the Expenses
To determine if a property cashflows (has revenues exceeding expenses) on a monthly basis, the expenses need calculated accurately. The most important expenses are as follows:
- Monthly Mortgage Payment – Calculate this using the mortgage calculator found in the Real-Estate-Analyzer.
- Property Tax – ask the seller, a realtor, or call city hall to determine this figure
- Maintenance Buffer – you will always want to include a buffer of at least $100/month to account for leaky faucets, broken windows, and other maintenance items that will come due for repair.
- Insurance – call a local insurance company to get a quote
- Utilities (i.e. water, gas, sewer, electricity) – It is recommended to have your tenants pay for these expenses, because if they don’t, there will be no motivation for them to use energy efficiently and you will be stuck with higher than average bills. If you choose to include utilities in your rent price for whatever reason, ask the seller for a copy of their most recent bills to get a feel for the cost.
- Condo Fees – if you are purchasing a condo unit, make sure to add the condo fees into your expense calculations…they can be well over $100 per month. However, insurance, utilities and maintenance fees are sometimes included in condo fees, so adjust your calculations accordingly. Ask a realtor or the seller for this information.