8 Steps to Running The Numbers on a Rental Property (THIS YEAR!)

Transcript:

On this episode of the personal finance podcast, eight steps to running the numbers on a rental property this year. Ooh,

what's up everybody. And welcome to the personal finance podcast. I'm your host, Andrew founder of mastermoney. co and today on the personal finance podcast, we're going to be talking through how to run the numbers. On a rental property. If you guys have any questions, make sure to hit us up on Instagram, tick tock Twitter at master money co and follow us on Spotify, Apple podcasts, or whatever podcast player you love.

Listen to this podcast on it. And if you want to help out the show, consider leaving a five star rating and review on Apple podcasts, Spotify, or your favorite podcast player. Now, today we're going to be diving into a topic that we get a lot of questions on. We're going to go through. Eight steps to running the numbers on a rental property this year.

Now we have done this episode in the past, but we are updating it because it's getting much more competitive in real estate investing today. So I am going to show you how to really get tight with these numbers because you really have to make sure that you are running the numbers correctly. If you want to have a real estate business, the entire business rests on your ability to run the numbers.

And this is the most important skill that you need to master in order to be a successful real estate investor. You make all of your money when you buy the property. And what that means is you have to make sure you account for everything before you buy a rental property. Now, one thing I want to talk about up front is that you're going to have to make a lot of offers.

You're going to run the numbers on a number of different rental properties. It could be dozens of rental properties before you even make that one offer. And then you have to actually start to make a volume of offers. This entire thing is one giant funnel. So you're going to run the numbers on a ton of different properties.

Then you're going to make a ton of different offers. And by a ton, I mean, it usually takes 50 to a hundred offers before you can actually get a property. If you're like making offers on the MLS, for example, or if you're making off market offers, maybe you can get more creative when it comes to running the numbers on a rental property.

So. Off market deals are always better than on market deals, especially right now. But I still think that if you are looking to buy X number of houses every single year, you definitely need to make sure that you were still making on market offers. And some of the easier ways to do that is just kind of get your license.

And then you can just make those offers instead of having an agent making 50 to a hundred offers every single month. But this is a volume play typically, especially in highly competitive markets. So you got to realize. I want you, if you've never run the numbers on a rental property before, and you were looking to become a real estate investor, you need to make sure that you are running the numbers daily.

And so my goal or my challenge to you is to make sure that you're running the numbers on at least two properties every single year. Now, if you have no idea how to run the numbers, we're going to talk about each and every single step here today. And I'm also going to tell you some things you need to do before you run the numbers on some of those properties, just to make sure everything is kosher.

But at the same time, we also have a rental property calculator tool that you can go and look into, and we have that linked up down below, and we're actually going to be talking through it today. It is a very. Simple way for you to run the numbers on a rental property. Step by step in that calculator. I literally take you step by step step one, step two, step three.

Here's exactly what we're going to do. And so I'm going to give you those steps today. You can build out your own, or you can take a look at ours and see if it fits your criteria of what you want to do. But the beautiful thing about ours is that it just takes you through those steps. It is very simplistic.

We have beautiful charts and graphs on there that are going to show you the timeline over time on how your property is going to perform based on the numbers that you. So we'll go through that today as we go through this process. Now, before you run the numbers on a rental property, I want to kind of give you the prerequisites to what you need to be doing because you can run the numbers over and over and over again.

But when you start to look at a specific area, and I imagine most of you are looking at a specific city or a specific town, or maybe Specific neighborhood and you are narrowing it down. So there's a couple of things I want you to think through as you do this. Number one is obviously crime rates. If there is a high crime rate, do you want to deal with that type of property?

And, or is that something that you're actually interested in dealing with? Sometimes you can find properties that have high cashflow, but they have high crime rates. That is not something I am ever interested in. So overall, you need to look at crime rates. You also need to look at the local economy and job market.

So a lot of people I know who invest in real estate, they look for something like a Starbucks, for example, that may be a mile away. This is a good indicator that the neighborhood is a neighborhood that has a higher standard overall. And so if that is your criteria, if you're looking for a B class or a C class property.

Then potentially there's a Starbucks nearby within a mile. You also want to look at schools, though, and you want to look at the proximity of schools in that area. What grade level do these schools have? You can look that up on a number of different websites to figure out, hey, what grade did this school get?

For us specifically, where I live, you can look up the county website as well. And you want to look at future development plans in the area. Are there new shopping malls going in? Are there cool restaurants and bars going in? That may be an up and coming area that if you invest in that location now, you may be able to be on the up and up when it comes to that.

In addition, I want you to look at trends that happened in the past. I want you to look at the history of some of these specific areas. Because when you're trying to target your areas that you want to invest in, this is really Really important. So what are the historical property values in that area? Is it consistent with what you're looking at now as you're analyzing properties?

What is the rent demand in that area? Really important to understand, because if you're trying to have rental properties, you need to know what the rent demand. In that area is what are the average rent prices? You have to know this number because it's going to help you dictate, Hey, when I run these numbers, I need to have an accurate rent price.

And in fact, I need to reduce that number by at least 10 to 15 percent so that I am a okay and safe. And you need to make sure that the property is appreciating over time. And it's not a depreciating property, which can happen in some locations, especially if it is getting worse and worse in that location.

So make sure those properties are appreciating over time. So these are some of the things that I want you to look at in a neighborhood prior to actually looking at a specific property. And it's really, really important to do this because overall, I'll give you an example of why I made a mistake on my second property ever.

Now, this is a story I don't think I have told in the past, but my second property that I ever purchased was a duplex, and when I bought this duplex, it was on the edge of an area that had been on the fringe for a long time. Meaning that it was a property where I usually only will invest in B class or C class properties.

Well, it was on the fringe of an area that was C class going into a D class area. And so when I was looking at this property overall, I thought, Hey. There are B class neighborhoods moving towards this direction and they are moving pretty quickly. And so I was trying to anticipate, Hey, could I buy this property?

And it'd be something that, you know, appreciates over time significantly. So I went out and I ran the numbers on this duplex and I ran the numbers very aggressively on this duplex. Meaning that I ran them so conservatively that I wanted to make sure that no matter what happened in any situation whatsoever, if I wanted to get out of this property, I absolutely could.

And so we went in, we made an offer on that duplex. And back then, I think this was only 2017. This property is probably worth a couple hundred thousand dollars now, maybe four to 500, 000 in this area. But at the time I offered 100, 000 for this property. Okay. And so when I offered that 100, 000 for this property.

We went back and forth a little bit and we purchased it for about 103, 000. Now you can't find a ton of deals in my area like that today. There's not a lot of other areas that you can find deals like that either. So we went ahead and we purchased this property. And so we purchased this property at a discount.

A lot of people weren't willing to deal with a couple of the things that we were going to deal with. There were already tenants in there, for example, which is something I ended up specializing in when I was investing in a lot more real estate was I love to find struggling landlords. Who had tenants already in the property, and then I could handle those tenants.

And the headache of handling those tenants was worth it to me for the overall reward and the overall discount I would get on that property. And so we would go in there and this already had tenants inside the property. So we get into this property and open it up and there's a tenant on one side and a tenant on the other one side, side a, we'll call it all of a sudden just decided they're not going to pay their rent anymore.

And so now my rent role that I ran the numbers for was cut in half, but I ran my numbers so conservatively that actually it was okay. So we went through the process of trying to work with the tenant. The tenant just wouldn't even answer us. They wouldn't talk to us whatsoever. And so we went through that process of having to go through months and months and months.

of conversation trying to help out this tenant and trying to work with this tenant and they just completely disappeared. And so they were not in the property anymore. They were not anywhere to be found. So we had to do a eviction process in order to get them out of the property, but they were already gone.

They were long gone. It was just something that we legally had to do in order to make sure that they were legally out of the property. And so they were long gone. We never heard from them again. Uh, but we went through that process on the second side, we get into the property. And when we toured the property on the second side, it was a normal one bedroom, one bathroom.

apartment on that side, and there was nothing irregular about it. After we purchased the property, we started to have some issues with the tenants on that side as well, which the landlord was, and he kind of warned us about that. And they also were not paying, or they paid partial, or they tried to pay a portion of their rent.

Eventually, they said they're not going to pay anymore either. And so, we had to go in there and have this conversation where we're going to have to remove them. And so the day of the eviction when they were getting removed, if you've never been through an eviction process before and I absolutely use this as a last resort, I want to work with people.

I want to help people. That is the number one thing I want to do. But these people were just not willing to pay us whatsoever. And they told us straight up. We're not willing to pay. And so we went into the property and I had to go there with the sheriff. The sheriff was at the front door, started knocking on that door.

And nobody was there anymore opens the door and there are 13 different fish tanks in this property in a one bedroom, one bathroom, 800 square foot property filled with different fish. Some of them had illegal turtles, some of them have other illegal animals. And so we went through this process of removing that tenant as well.

So as we did this, we finally filled the property with new tenants. We got it all cleaned out. We filled it with new tenants. All the animals were safe. They went to a shelter somewhere else. We finally got new tenants in the property. And again, problems kept happening. And I realized very quickly why are problems continuously happening?

Because this is a property that does not fit my criteria overall of the market that I want to be in. And into something honestly was giving me. All of my problems. So at that time I was buying more properties and I had a few more properties at that time and this one was giving me all of my headaches.

It was giving me daily issues. And so I decided, Hey, I made a mistake. This was a mistake that I made and this was only about eight months later. I don't really want to hold this property anymore. So I decided to wait for the full year and then I was going to sell this property. So I sold the property a year later and I consider it a mistake.

It was a mistake on my part. Okay. But I ran the numbers correctly and we still made 40, 000 on the sale of that property. And so this is the power of making sure that you run the numbers properly on your properties is that if you run the numbers correctly, you can have all these headaches in the world.

You can have all these problems, but you will always have an exit strategy, especially if it is one of the biggest headaches that you've ever had in the world. Now that was the short version of the story. There was a lot more in between there that I won't get into, but at the same time, if you run your numbers properly, you will still make money, even if you make a mistake.

And so this is something I really want you to make sure that you understand as we get into some of this stuff. And so we're going to go through the analysis of properties here. We're going to go through it step by step and make sure that you completely understand how this works so that you can go out and you can either utilize our spreadsheet, you can utilize your own spreadsheet, whatever you want to do out there is going to be really, really powerful over.

Oh, now let's jump to a break and then we're going to get into the eight steps. You need to take. All right. So step one is going to be that. Make sure that you gather all your information. So if you're going to make an offer on a property, I want you to gather as much information as possible. Hey, if you can, I want you to get.

Inside of that property, because you need to go through specific checklists to make sure you understand all the repairs needed inside that property. Number one is understanding those repairs. So you got to get through and gather all those information. So walking through the property, either with your agent, or if you have a license, then walking through.

And just having a checklist in play is going to be really important. I like to create a repair checklist and then just go through each and every single room and make sure I understand even the little things are going to add up over time. So you got to make sure that you capture each and every single one of those repairs is a closet door loose in one of the bedrooms.

You need to make sure that you Account for that because you're going to have to fix that. Is there issues with the baseboards? Are there flooring issues? Do you need to remodel a bathroom? All of these come into play when it comes to repair costs. If you'd never estimated repair costs before, there's a book from bigger pockets called estimating repair costs, something like that by Jay Scott.

And I found that really helpful. When I first started to try to assess repair costs, and I think he's updated it a couple of times since the first time I read it, and overall, I think it's very, very helpful just to think through and get your mindset ready to understand what repairs are going to cost. If you don't know, find yourself a local contractor to walk through some of these houses with you and then utilize that contractor and make sure you utilize them when you buy rental properties and or find a handy person or someone else to walk through that property with you so that you are able to assess all that information.

In addition, I want you to gather information from all over the place. Then what we're going to do is step two, we're going to set the years of analysis, meaning how long do you plan on holding this property? If you're not willing to hold a property for at least 10 years, then don't even consider running numbers and purchasing this property.

But if you are willing to hold it for 10 years or longer, next, I want you to set the years of analysis. Now in the spreadsheet that I have, we give you step to set the years of analysis, and you can put. 10, 20, 30, however long you want. Maybe you want to hold it for 12 years. It doesn't matter what it is.

What are your years of analysis? Maybe you're going to buy this house to see if it's going to be a rental property. And you're going to move out of this house in the next 15 years. Cause you want to move to Colorado and live your dream life. If that's you, then go ahead and set it for 15 years and see what the numbers come out to.

Now let's move to step three. So on step three, you're going to enter your purchase costs. What are your purchase costs? So a lot of times these are going to be your purchase price overall. So you're going to set the price that you think you would be able to purchase this house for, and you're going to put in things.

Like closing costs. So these are going to be things like attorney fees, inspection fees, miscellaneous costs, title fees, all of the costs for closing on a house. Now, a lot of times this can go a number of different ways. So what I want you to do is call a local title company and say, Hey, I am buying rental properties and I want to know what the percentage is in this specific area.

If I bought a property in this area and so a lot of times closing costs will be handled by either the buyer or the seller and the seller a lot of times will take on a lot of those closing costs, but you will have closing costs as well, especially if you are going out and you are getting a note. So if you're going to get a note or you're going to get a mortgage on that house.

You're going to have a lot of closing costs that you're going to have to cover based on that mortgage. So you got to make sure that you understand what those are. And so you call a title company, maybe you call your lender. So you need to get pre qualified before you make some of these offers with a lender.

And so once you get pre qualified, ask them, what is this going to cost me? Overall, in closing costs to buy a house at 200, 000 to buy a house at 300, 000 or 400, 000, whatever you're looking for, ask them what those closing costs are because you need those numbers to understand how to run these numbers correctly.

If you get to the closing table and you forgot to run the numbers on closing costs. And now you have an extra 7, 000 that is coming out of pocket. It may change the deal dramatically. So you got to make sure that those closing costs are factored in. Uh, we make sure to remind you here in the spreadsheet.

Now, step four is we're going to estimate some of the financing costs. So if you are financing the property. We need to understand what the financing costs are going to be. So first is going to be down payment percentage. You need to know how much cash you need to have on hand for the down payment on this property.

Now, what do lenders typically look for when it comes to down payment? I've seen as low as 20%. I haven't seen many go below 20 percent unless you get private financing. And, or a lot of them look for 25 percent down. Some might be even slightly higher. If you're a lender who's listening to this podcast right now, shoot me an email.

Tell me what you look for when it comes to a rental properties overall. Now, if you're buying a duplex and your house hacking something along those lines, you can get into a property with an FHA loan 3. 5 percent down, or you can adjust that rate a little bit. If you're going to live in the house. You can get much better rates.

So this is why I love things like live in flips. This is why I love house hacking, because you can get into that property for much lower down as long as the numbers work. Really, really important to understand as long as the numbers work. Now, the next part of this is we're going to need our down payment percentage.

So if it's 20 percent on something like a 200, 000 house, just to make the math easy, you need 40 grand for your down payment prior to even being able to look at buying this house. OK, so we need to know that number. We give you that percentage and that number and it will populate for you. Then we need to know the interest rate.

Now the interest rate right now is killing a lot of deals, which is why you really need to nail this down. I want you to call lenders in your area, in your specific area, specific ones that you would actually use and figure out what interest rate they are actually providing right now. I would call three of them.

And I would go through the process of asking him a bunch of questions and interviewing them. Don't let them pull any of your information yet. Just ask him these questions. Say, what's the average interest rate for X credit score so that you can get that number back correctly? You need the correct number here, and I want you to add a small amount on top of that so that you can be conservative.

The more conservative you are with your numbers, the better off the deal is going to be for you because you give yourself more cushion. And you want more cushion when it comes to running the numbers on businesses or real estate or anything else in life, cushion allows you more flexibility. So you got to get that cushion and make sure that you have it available.

Then how many years are you holding this property? So when you set the number of years in step two on our spreadsheet, it'll actually just populate this for you automatically. Hey. They said 12 years. We're going to put 12 years here. But overall, if you want to make sure that you have it right, you can just type it in there and do 30 years, 15 years, 40 years.

It doesn't matter what you want to do on there. Some places let you do 40 year mortgages overall. So it'd make a little more sense to do a 40 year mortgage on a rental if you're going to hold it for that long. But overall, I typically do 15 or 30, depending on what the deal is, and then go from there. Now, this also is if you're going to sell or finance, so, you know, I love seller financing.

It is one of my favorite ways to finance anything. And so if you can get a seller to actually finance this deal for you, you also put the same exact financing costs if you're going to sell or finance. And so it's really important to run the numbers there so that you know, what's going on. Now, step five is we're going to enter our income.

We got to know what our income is so that we can understand, Hey, how does this associate against our expenses? So rental income is number one. So if you think this property is 200, 000 and it's going to rent for 2, 500, you may have yourself a nice deal there. And this is the quick math to understand, Hey, should I even run the numbers on this property is the 1 percent rule.

If you've never heard of the 1 percent rule, you need to make 1%. Of the purchase price in rent per month in order to even consider the deal. Now, this is not perfect. You need to still run the numbers, but this will tell you, should I even dig deeper than this? If it's a half a percent, it's likely not going to be a deal that's going to work.

So it's gotta be 1 percent or more back in the day. It used to be 2%. If you got 2%, you were cashflow and 500 on a single family house. Those are few and far between, at least in my area right now, maybe in your area. They are coming up a lot more, but it's much harder to find a deal based on that, especially with interest rates the way that they are.

So you want to look at rental income, and then you also want to look at other income. Are there space in your property to park a trailer? Is there space to park a boat? If you have an apartment complex, are there coin operated laundry in there? Is there additional income opportunities where you're not gouging your tenants, it's just additional amenities that you want to offer to these tenants, and if you offer those amenities, will they pay for it?

That's the question. Are there parking spaces that need to be paid for all those types of things? So overall, this is going to be something where you enter all the additional income. If you have it, a lot of times I never had additional income. There was like no additional things that I would offer overall.

That would mean having anything there, unless you're going to allow pets. Maybe that's one where you can have an additional income there, but typically the pet deposit all goes back to repairs as you go through this process. Now, what we're going to do is we're going to enter the fixed paid expenses. So the fixed expenses.

Are going to be really, really important overall for you to understand the expenses. What I really want you to nail down. This is really important. Be conservative on the rent. Be conservative on interest rates. Be really, really aggressive on expenses, meaning overestimate these expenses because these are going to be more than you think.

They will be on a lot of properties that duplex. I just talked about the amount of repairs I did. I spent 3, 000 just on plumbing in the first year. To say I underestimated that a little bit would be an understatement. So you need to make sure that you are estimating these expenses. And I ran the numbers so conservatively that I still made money on that, which is crazy.

So interfix landlord paid expenses. So that is step six here. And so first electricity, who pays for electricity? Do you pay for electricity or does the tenant pay for electricity? Make sure you factor that in if you pay for it. And if you're wondering to yourself, Hey, if I'm buying a duplex, And I have to pay for the electricity.

Is there something I can do? Sure. You can do something about it and you can have an electrician come out and they'll split the electricity up between the units, but it is expensive. It's a few thousand dollars. And so overall, if you want to do that, you want to put that into your repair costs as well, so that you don't have to deal with paying everybody's electricity and dealing with fights, those types of things.

Typically, I like to split it overall when it comes to multifamily units. Next water and sewer. Same thing. Do you have to pay water and sewer sometimes on duplexes, triplexes, quadplexes, or bigger apartment buildings, you're going to be responsible for the water and sewer. So you need to factor those numbers in and base the rent on that.

Just add it to the rent as you go through that process. And then PMI, is there PMI on your deal? Maybe you are going to live in the property. If there's PMI, that is going to be a fixed cost that you need to factor in garbage. Who pays for garbage? Sometimes the tenants pay for garbage when they set up their utilities.

Sometimes the landlord pays for garbage. Make sure you factor that in. HOAs. Our good old friends at the HOA are really good at killing deals. Meaning that if you find a property, A, that's in an HOA location and There is an HOA fee. Two things you need to do here. You need to be very cautious with properties that have an HOA.

Number one, are you allowed to rent properties in this neighborhood? A lot of people have bought properties and not read the HOA bylaws, meaning they say that you cannot actually rent out this property for long periods of time. Or if you were looking for an Airbnb or something like that, if they have an HOA, there's a lot of rules surrounding that.

So make sure, A, you can rent a property. B. Do you need HOA approval to rent the property? Meaning that do they need to prove a tenant and meet your tenant? That's a huge headache in and of itself. Something I would not want to deal with. C. What are the HOA fees each and every year? This is one that will absolutely kill your deal.

You can go out and you can look at condos and you can say to yourself, Hey, these condos are going to cash flow. I can buy a condo for 150, 000 and I can rent it out for 1, 700. But there's a 400 HOA fee. And outside of the HOA fee, I want you to look for something called a special assessment. And I want you to ask the HOA this if you're going to really seriously consider buying a property with an HOA.

And a special assessment is something that an HOA can add on to your HOA fee, and they make every single person in the complex pay this. Based on some sort of repair or something that needs to be done. So, here's an example. Say that you live in a condo. And the condo building needs a brand new roof. Well, do you think the HOA is going to dig in their own pockets and pay for that roof?

Sometimes. But also, if they have bylaws that state that they could issue a special assessment, what that means is it hits you with a 5, 000 bill out of nowhere as your portion to pay for the roof. And so you need to make sure that those aren't in there because those will absolutely kill a deal and they could take away all your cash flow for years to come if you're not careful next monthly insurance.

So I recommend that anybody with a rental property has insurance on that property. I have heard stories from properties burning down. I have heard stories from being having huge damage on the property. You cannot control what your tenants are doing in that property. You can put it in a lease, but they will still break rules.

So overall you need to make sure that you have insurance. I know a lot of real estate investors out there who do not carry insurance. I think that is a really, really bad idea. I think you always need to have insurance on your property. If you're saving a hundred bucks or if the insurance is killing a deal, then it's probably not that great of a deal in the first place.

So making sure that you factor in monthly insurance, how do you do this? You call up your local insurance agent in your area. Mine's a good friend of mine. And you just say, Hey, I'm thinking about buying this property. What is the insurance going to be on it? If I buy this property and what insurance do I need?

So a lot of times if you are buying something, maybe on an FHA loan, where you're going to live in one unit and then rent out the other, you may need, you know. Flood insurance. You may need wind mitigation insurance. It depends on what you need based on the loan you're getting also. So they're going to ask you a couple of questions.

You're going to answer those questions and you'll get the number back. So you need to understand what that number is and make sure you get what that number is. The next one's property taxes. Cause guess what? You got to pay property taxes when you want to rent a property. And so how do you figure out what the property taxes are going to be?

You're going to go online to either your local city or your local counties website. And look for the County property appraiser. And so the property appraisers website is going to get pulled up. It's probably gonna look like it's from 1990 and you're going to enter in the property address, or you're going to enter in any information that you have in the property.

It's going to come up and then you look through that report and that report's going to tell you what the taxes are on that property. And so that's how you get an accurate assessment of last year's taxes. You stick it in there and then you increase it by whatever percentage they typically increase in your County.

It's different everywhere. This is very location specific. So you've got to look at your locations, property appraiser overall. Then I want you to think through, are there any other monthly expenses? This also in step six on our spreadsheet gives you the opportunity to add other monthly expenses that you can't think of.

Now, is this all the expenses that we need to be thinking through? No, this is just the fixed expenses because on step seven, we're going to be talking through the variable landlord paid expenses. What are variable expenses? These are really important to understand. So when it comes to variable expenses.

These are things that are kind of invisible. Like you can't really see them right now, but they're coming. They're real expenses that are coming and you need to have some sort of savings account, or you need to have it budgeted out in your business checking account or your LLC checking account. If that's how you're rolling right now, you need to have it budgeted out, uh, while you're collecting rent.

So a lot of times people think they can collect rent and whatever expenses come through. Whatever's left over. Hey, that is the amount of money that I've cashflow. Do they just subtract their mortgage? And that's cashflow. That is not cashflow because what we have left is we have four things. Okay. Vacancy is number one.

When a tenant leaves your property, your property will be vacant longer than you think it will be. This is not something where a tenant leaves and you're going to get somebody in right away and you're going to have zero vacancy, you're going to have a time period where your property is going to be empty and nobody's going to be paying you rent.

Now, the desirability of that property is going to dictate part of this. Your rent price is also going to dictate part of this. But also your speed to take action and get people in there and your sales skills to get people in that property is going to be another thing. It is a lot of work when your tenant leaves to get another tenant in there.

It is very, very annoying overall. And so making sure you factor in that vacancy cost. I like anywhere from 8 to 12 percent. Low end, 8 percent. High end, 12 percent. 8 percent. Realizing this, thinking you through this right now. 8 percent is only one month of vacancy. So that means you got to get somebody in there within one month, which sounds easier than it is.

So overall, just making sure that you think through a vacancy is really important repairs and maintenance. So repairs and maintenance, same thing, eight to 12%. This is stuff like if there's a leaky faucet and you have to go in there, this is stuff like if someone's. Toilet is exploding in the middle of their bathroom.

Not like I've ever had experience with that. Then that goes in there. This is something like if you need to repair a washing machine, if you provide washers or dryers, then that needs to go in there. This is if a fan is not working or you need to call an electrician because some lights are not working or you need to do all these other things.

This is repairs and maintenance. Now you may be saying to yourself that I'm just going to do all the repairs and maintenance. I don't need to worry about that. There's still costs to go to home Depot. If you want to run a successful business, you do not need to be doing the repairs in your business. You need to have somebody else do it so that you can spend your time trying to scale this business and finding more properties, the highest dollar amount of activity that you can do as a real estate investor is running the numbers on properties and trying to.

Find more properties. If you spend all day long in your properties, repairing them, cause you are Mr or Mrs fix it, then overall, you are going to be spending time on low income producing activities. I want you to spend all of your time on high income producing activities, which is finding more properties, finding more deals, talking to more investors, networking.

These are how you can really build wealth when it comes to real estate. Next, we're going to look at capital expenditure. So capital expenditure. Is a big one. And do not leave this one out. Capital expenditures are things like if the roof needs replacement, every 20 years, your roof's going to need replacement, maybe 30 years, depending on what kind of roof you have.

Uh, so that is number one, unless you have a metal roof. I think those go to like a hundred years, 50 to a hundred years, something like that, that's another option. So. One roofing, two AC, three plumbing. You're going to have plumbing issues. If you own a property for 30 years, you're going to have major plumbing issues at some point in time.

Got to make sure you're factoring in that. Or if you have septic or anything else like that, make sure you think through that AC and heating. I have had ACs go out so many times at properties three. Four, five, six, seven grand a pop. So making sure you factor in for that, all these are the big expenditures.

If you have a pool and your pool needs to be repaired, or you have pumps that need to be repaired overall, all those are big, big things. So capital expenditures are the big expenses that we don't think about on a month to month basis, but they're coming, they're coming in hot too. When they come in, they can take away all your cashflow.

If you do not save for them, eight to 12 percent on those as well. And then lastly is management fees. So there's a big argument with this is, do you factor in management fees? And if you never ever get a manager, then you just keep that as profit. But if you do get a manager, at least you have the money set aside and it has already factored into your numbers so that you can get a manager.

That is how I really think about it is I factor in management fees, even if you're going to manage your own properties, because eventually you don't want to manage your properties forever, especially if you're going to scale this business. Now, if you want two or three properties, you can manage those properties fine.

But if you want to have a massive rental property in fire and you want to have 30, 50, a hundred, 200, 2000 properties. Then you need to make sure that you're factoring in management fees. What a management fees go for eight to 12 percent again. I would go on the high end on this one though, because you don't want to get the low end manager who's charging 8 percent when there's a really good property managers charging 12.

So just making sure that you factor in those management fees. I think is a great thing to do as well. A lot of people will leave this one off to get a deal to work. I'm not willing to do that. So, um, some of you may be willing to do that. I am not because I need this option always, always, always. I'd much rather have a property manager than you're just managing the manager instead of managing, you know, 50 to a hundred tenants, depending on how big your little rental property empire is.

And then lastly is future assumptions. So in step eight, we have in the spreadsheet here, future assumptions where it has annual income growth, annual expense, growth, sales, expenses, growth, all these different things over time. So you can see how your property is going to change over time and make sure the numbers still work over the course of however many years you put in here.

So on step two, when you set your years of analysis, That's going to tell you, Hey, these future assumptions are going to take into consideration how many years you put in here. Now, the cool thing about our rental property calculator here is then it's going to break it down into a nice cool pie chart that's going to show you, Hey, here's where your expenses actually break down and how much you're going to need.

So for example, it's going to do that. And it's also going to give you an income pie chart, and then it's going to give you analysis over time. So the overtime, it's going to give you this analysis. That's going to tell you, you know, what's your income going to be in year five? What's it going to be in year eight?

If it increases by 2 percent every year, what's it going to be in year 30? And so it gives you that analysis over time. And it also gives you your expense change over time, cash on cash return, your net operating income, your property value, equity, loan balance, total profit if sold. All those different things are going to be in that analysis over time.

So this is a great tool overall. It is a great tool that you can utilize to be able to run the numbers on a rental property. So if you're interested in that rental property calculator, we have it up now. We'll link it up down the show notes, 19 bucks. We'll get you that rental property calculator, and it takes you step by step on exactly how to run the numbers on a rental property.

And so overall, I think it can be really, really helpful for a lot of people or. If you love spreadsheets and you love doing some of this stuff, that's something you can build out as well by just utilizing the steps we talked about here. But this is the exact one that I use. This is my rental property calculator that I use all the time when I'm running the numbers on rental properties.

And so if you're interested in that, uh, make sure you check that out down below. Listen, thank you guys so much for listening to this episode. If you learn this skill, this skill can make you millions of dollars. It is a very, very valuable skill to understand is how to run the numbers on some of these rental properties.

And it is something where if you just take some time, And practice over and over and over again, by using our rental property calculator, you will become a master at this and become a really good real estate investor because you know how to run the numbers up front. So thank you guys. I cannot thank you enough for listening to this episode and investing in yourself because that is exactly what you're doing when you listen to this podcast.

And I appreciate each and every single one of you. Thank you so much for listening. Share it with a friend. If you're getting value and we'll see you on the next episode.

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