evaluating cost effective rental property

hi Claude

I'm assuming your question is about how to evaluate a rental property for cash flow. If so, I use a simple Excel spreadsheet if you are interested in it. Send me a private message. As I cannot attach it to this e-mail.

Reuben

When evaluating a property for cash flow you have to look at all the expences that will be built in with owning a rental property.
Management company 10%
Tax and insurance (depands on your area)
Rehab fund $50 (this can very but I would suggest put away something monthly)
Vacancy rate 5%-10% is typical
If there is a mortgage the mortgage payment

After subtracting off all these expences from the monthly rent what is left is the cah flow.

I just got taught in my last REI meeting that around here we take the gross monthly rent*.7(10% vacancy, 10% repair, and 10% propery management) minus your payment (if there is one) and taxes and insurance. If this number is positive then there is cashflow.

I just wanted to add that this formula that begins with the gross monthly rent, and subtracts the following monthly expenses:
vacancy allowance (5-10%)
repair/maintenance budget(I use $35 to $50/month depending on age and condition)
tax
insurance
property management allowance (10%)

will leave you with a number we call Net Operating Income (NOI)

Two other formulas worth noting are:

Capitalization (CAP) Rate= NOI Divided by Purchase Price

NOI minus Mortgage Payment (Debt Service) = Net Income or CASH FLOW