Just the other day I got an email about an investment property and as I quickly scrolled through it my eyes jumped to the monthly cash flow that the property generated almost it knocked my socks off!
It was almost a $1000 a month for a duplex.
Now, I own a bunch of duplexes, and none of them make a thousand a month, even in my market where properties cash flow quite well.
My first thought was, what am I doing wrong.
But then I took a second and looked at the numbers more in depth and realized HOW they got this monthly cash flow.
They didn’t include any, and I mean, any costs that are associated with an investment property.
I’ve seen this SOOO many times over the years, and if it wasn’t for running my own numbers, I’d probably get duped into buying a property just like the one I was emailed based on these fake numbers.
So, what costs should you be including when running numbers on a potential investment property, that many times aren’t shared with you? Watch the video below to find out.
THE GOLDEN RULE WHEN INVESTING IN REAL ESTATE. ALWAYS USE YOUR NUMBERS!
I can’t stress this enough.
Your Realtor, your friend, a wholesaler, an investor, THEY will give you numbers for a potential investment property, and they might look good...
And you might trust them that the numbers are correct, but trust me, don’t be fooled by these fake numbers, because they most likely aren’t correct.
For example, that email I got about the property that cash flowed almost $1000 per month….
The numbers weren’t correct, they were fake, and it’s because they didn’t include the following costs and they should have.
The first cost they didn’t include is property management.
Now, I get it, most investors, especially beginners, will want to manage their own properties. one reason for this, is it’s a great way to learn the ropes about investing in real estate, and managing real estate, and two, to save money.
However, let me ask you this, how long will you be managing your own property?
I get it, I myself managed my own properties for 2 years, however, when I got to over 10 doors, it just became to be too much, and too time consuming, and I handed it over to a property manager.
If you currently manage your own properties, leave a comment below as to why you haven’t hired a property manager yet, I’m curious to know what’s holding you back, because it was the best decision I’ve ever made.
By including this cost on every property, I purchased, when the time came for me to hire a property manager, the cash flow, the return I had projected was still achieved, and that basically up to the point, I was putting more money in my pocket, and getting a better return, by including this in my numbers from the beginning.
Second cost they didn’t include is vacancy rate.
There is no such thing as 100% occupancy rate.
There will be a month, minimum, that the property will be vacant, either because you couldn’t get a tenant to move in right away, or because the property needed some repairs when a tenant left.
Either way, and if you read my series of articles about the hidden costs of investing in real estate, this 1 month of lost rent due to vacancy needs to be extrapolated out and included in your analysis.
For example, even if you only had your unit vacant for 1 month on average every 5 years, well that 1 month is a cost that you are incurring.
If you were to stretch out that 1 month over those 5 years, and let’s say the rent you lost was $2000 from the unit being vacant, well that’s a cost of $33 per month.
This $33 needs to be included in your analysis, as this will affect your monthly cash flow.
The third cost they didn’t include is repairs and maintenance.
This is another hidden cost that is ALWAYS omitted in THEIR numbers, but needs to be included.
It’s very similar to the vacancy cost, in that it needs to be extrapolated out.
Sure, the duplex that was emailed to me was brand new, and probably will have little to no repairs and maintenance for a while, however, that furnace or that AC, or that roof on that duplex will need to be replaced every 10-15 years.
As a result, this replacement needs to be included in your numbers, and you do that by stretching this cost out.
For example, if every 15 years you need to update the roof, or ac, or furnace, or possibly all of them at once, and it’s going to cost you $10K, well that $10K, needs to be stretched out on per month basis, and included in your numbers.
For those trying to do that math, that works out to be $55 per month.
So, the whole reason you need to include these costs in your numbers is because if you don’t, you’ll end up over paying, and worse, that amazing cash flow that was projected, that you were told you’d get, that you were relying on to possibly supplement some of your income...
Well it ends up disappearing, because of these costs that you will incur at the property, that you should’ve included in your analysis before investing in it.
So, don’t be fooled by fake numbers.
WHAT TO DO NEXT
If you want to be able to run your own numbers instantly, to know which numbers to include, so this way you know whether a property is a good investment or not, and even access the benchmarks I use to determine if a property is a good investment or not, check out my Analyze All Property Program by clicking on the image below.