REI Wealth Magazine Featuring Paul Finck | Page 17
LINDA'S LETTER
Formulating Proper Cash
Flow for Rental Properties
By Linda Pliagas, Realty411 Magazine
O
ur office is flooded
with emails. We
receive about 500
emails per day from
small, medium, and corporate
companies marketing their services,
properties, webinars, events, etc.
The other day one email in
particular stood out, it was from an
investment advisory office
promoting a longdistance rental.
Astonishingly, two of the most
critical elements of the cash flow
analysis were completely missing:
repair costs and a vacancy factor.
Without these figures, the true cash
flow estimation is not accurate,
which will lead to disaster.
The following is a partial sample
of the financials sent over: The
email described and showed a nice
looking bread and butter property.
We used generic numbers as a basic
example:
Property Address:
3540 Hope Drive, USA
Property Information:
Purchase Price: $100,000
Bed/Bath: 3/2
Loan Information
Down Payment 20% $20,000
Loan Amount $80,000
Interest rate: 6%
Linda Pliagas, Publisher
borrower. Rates are determined
according to a borrower's credit
history, number of properties, and
type of loan. Conventional financing
offers the best rates, especially for
longterm financing of investment
properties. Private capital loans are
of higher interest and should be used
only on a shortterm basis.
Monthly Rent: $1,000
Annual Rent: $12,000
Monthly payment: $400
Annual Mortgage: $4,800
In the email, a 6% interest rate
was shown. However, the important
thing to emphasize is that interest
rates vary significantly with each
Annual Expenses:
Property Taxes $1,040
Insurance: $650
Management: 10% $1,200
Vacancy Allowance: 0
Maintenance Reserve: 0
Other Expenses: 0
Annual Expenses: $7,690
Annual Cash Flow: $4,310
Monthly Cash Flow: $359.16
(This is not accurate, as important
expenses were excluded)
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