How do you calculate cash flow?

[Itsik]

Hi all,

I bought my principal residence about 10 months ago downtown Toronto.
It is a bachelor condo,that i`m going to rent it soon.
I`m just wondering how you calculate the cash flow income.
I`m going to attend my ACRES meeting in T.O but can`t to get your views on this issue.
Here are the numbers:

Monthly Mortgage payments + taxes : $665
Condo fees : $193
Heat,hydro and AC are included in condo fees.
Total: $858

I plan on renting it around $1100 as a fair price,let`s say between $1000 and $1200.
For the sake of argument and because i`m "conservative",let`s say i rent it $1000.

My cash flow should be $142 ?
Simple as that,or do you take into account other factors.
And do you calculate the percentile out of $1000 or $858

Thanks all,

Itsik

 

[ChrisDavies]

You need to subtract a vacancy allowance and a management allowance (say 5% and 8%). If you`re self managing then the management allowance is lower/not applicable.

I`m not sure what percentile you`re referring to though.

 

[lanedry77]

I would also throw a contingency in for maintenance. Even though it`s a condo, things inside will need repair/paint/etc...

Itsik - the percentages are calculated from the income, not the expense (5% of $1000, not 5% of $858).



David.

 

[markbrad]

Depends on how you want to do it. I usually take my 80% LTV (mortgage payment) and then figure my 20% downpayment at 5.5%, and add the two together to get an effective mortgage payment on 100% of the value. I Value the money I put into it as well as the bank mortgage, as it needs to be getting me a return, either in the property, stocks or whatever. I then add insurance, taxes, monthly maint, vacancy, utilities (if applicable) and any other expense that comes with the property. The difference between all of this and my rental income is my positive or negative cash flow. Some people don`t include their cash invested into the equation. Hope this helps some

Mark

 

[DaveToynbee]

+ insurance + property taxes too (break yearly into monthly and add into your monthly expenses)

 

[invst4profit]

As previously mentioned there are many more expenses in owning a rental property than you have included.
I would normally calculate my dept repayment portion based on 100% financing, also as previously mentioned, so as to receive a return on my cash invested which could be earning a return elsewhere if not tied up in the rental.
As far as expenses are concerned they can range anywhere from as low as 25% to 60% or more of your rental income depending on the unit.
A fair ballpark figure on a condo should be in the 35% - 40% range when all expenses are included.
Condo fees, taxes, upkeep, repairs, insurance, legal, accountant, management, vacancies, evictions etc.
The biggest unknown in a condo is special assessments.

On the surface your unit does not appear a good candidate to see positive cash flow.

 

[kboughen]

QUOTE (Itsik @ Mar 26 2009, 08:18 PM) Simple as that,or do you take into account other factors.
As this is a bachelor apartment condo, the maintenance/repairs should be very low. You will need to factor in management and vacancy numbers which will depend on who is doing the management work and what the vacancy rate/tenant profile is for this type of unit in your area.


As suggested above, add in property taxes and insurance to make sure you have the basics covered including the PIT, utilities and condo fees. The decision as to if this is enough cash flow to justify holding the property depends on a lot of other things. For example, if you where to sell today, would you lose money? How much equity is in the property and could it work for you better somewhere else? Is it in a Top 10 town with a reasonable expectation for appreciation?


The other posts provide suggestions on what to include in cash flow, ACRES will provide more details. Investors often customize their cash flow calculations to address the property specifics and their own risk tolerance.

 

[Itsik]

Wow.
Thanks all for your inputs!!
I guess one thing i did not take into account was the "vacancy rate".
Thanks again,

Itsik