Property Analysis #1, continued...

I want to attack this analysis by two different methods. The first is probably not new to anyone. All we have to do in this method is determine the income and expenditures to see if at the end of the month there is a positive net flow. Let's do it for this Shelton property...

Income: +$1,200/month

Taxes: $1,455/year or @$120/month

Insurance: $50/month

Water/Sewer/Garbage: $100/month

Property Management (optional): $100/month

Vacancy (5%): $60/month

Maintenance: $50/month

Mortgage (assuming 5% interest, 20% down): $385/month

I may have missed something. Probably not. Anyway, when we run the numbers, at the end of the month there is a residual net cash flow of $335/month! Most investors would say that $100 profit per door is a minimum, so this property meets the criteria, including management fees. Management companies might be more liberal with repairs than a tightwad landlord like yours truly, so the maintenance number might be a bit higher, but I would be happy with a "hands-off" property that puts $250/month in my pocket. Your return on the original $18,000 (20%) down payment per year is $3,000, or 17%! How does that compare with the stock market? Since it's managed, there are no phone calls in the middle of the night!~

A lot of real estate investors suggest that prospective properties adhere to the so-called 50% rule. The rule dictates that 50% of the rent, over time (considering minor and major repairs), will be dedicated to liabilities like taxes, insurance, repairs, maintenance, and utilities. Count on it. If that's the case, the other 50% is left to pay off debt, to wit, principal and interest. Let's apply it to the Shelton property. Half of the rent is dedicated to repairs, insurance and such, while the other half ($600) is applied to the debt of $385/month. This method of analysis yields a $600-$385=$215 net income per month. Looks like this is a property worth looking at!