![]() ![]() You will be prepared and it won’t hurt nearly as bad when it happens. That is why you need to assume there will be a problem at some point. You can have great tenants for many years and one bad tenant will cost you thousands or tens of thousands of dollars. We have also seen that things like Covid can extend that time frame greatly! On my rentals, I have been lucky that I have had very few evictions but I have had some and they can take months. It can take months and thousands of dollars to evict a tenant. One of the most costly scenarios when owning rental property is if you have to evict a tenant or they stop paying rent. Not only will you not be collecting rent during vacant months, but you will also have to pay utilities on the home (if the tenant normally pays utilities). Vacancies will happen when a tenant moves out, a tenant stops paying or you can’t rent a property as soon as you hoped. Vacancy costs come about when you own a rental property when it is not rented or you are not collecting rent and from evictions. ![]() I have $500 a month in cash flow on my rental properties and that is plenty of room to absorb unexpected costs. Hopefully, with unexpected costs, you will still have positive cash flow if you were conservative in your planning. If your vacancies or maintenance ends up being higher than you think, it is best that you planned for the worst-case scenario. The does not mean I will always be lucky and one really bad tenant or big repair can make up for years of smooth sailing. My actual returns have been better than what the cash flow calculator estimates, but I have been lucky with vacancies and repairs. I designed the cash flow calculator to be conservative and account for maintenance and vacancies. I like to plan for the worst, but hope for the best. How long are you willing to pay into a rental property before it pays you back? The easy solution to this problem is to make sure any rental property you purchase has positive cash flow! You can still buy without cash flow as long as you understand the risks! Why should you be conservative with your cash flow estimates? If you are hoping for appreciation, remember there is no guarantee that prices will increase. It is no fun paying money into a property every month that is supposed to be making you money but isn’t! It is true that you are paying down the mortgage and getting tax benefits from the rental property, but negative cash flow can cause a lot of stress even with those benefits. You have to remember just because the rent coming in is slightly more than the mortgage, that does not mean you are making money. If you are using a property manager, they can really cut into your returns, but many times are well worth the cost. Positive cash flow is very important with rental propertiesĪfter you enter numbers into the cash flow calculator, you may realize the numbers don’t look as good as you first thought. How to get started investing in rental properties. Here is what the cash might look like on a rental: Even if you are managing the properties yourself you need to remember that takes time and therefore money from you. ![]() Something else that is often forgotten about is property management. I like to live by the philosophy: plan for the worst, but hope for the best. I have been extremely lucky that I have had very few vacant months with my rentals, but you can’t count on that. I have learned that even on a completely remodeled home you will have maintenance issues with renters. However, it is very important that maintenance and vacancies are accounted for as well. A lot of investors will count cash flow as the rent received minus the mortgage payment, taxes, and insurance. The easiest way to do this is to use our cash flow calculator located right here. The first step in figuring out how much cash flow you need is determining the actual cash flow on a rental property. How do you calculate how much cash flow on a rental property? ![]()
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