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How to Map Out Monthly Expenses and Cash Flow for An Ellenton Rental Property

How to Map Out Monthly Expenses and Cash Flow for An Ellenton Rental Property

If you're considering purchasing an Ellenton rental property, it's important that you do your homework before buying. One of the most critical tasks is to map out how much money will be coming in and how much will be going out for expenses each month. This way, if there are any hidden costs or unforeseen risks with the property, you'll know how they affect the bottom line.

You might have heard that "cash is king" when it comes to being a successful real estate investor, and that statement is true! Check out these Ellenton property management tips to map out a rental's cash flow before closing on a new investment.

What You Don't Know Can Hurt You

Cash flow is the income you have left over after collecting the rent and paying bills each month. To maximize returns, rental properties need more cash than costs at the end of every month. Consistent cash flow also helps property owners be prepared for unexpected repair costs or other emergencies. With enough money on hand, investors don't have to risk dipping into savings or going into debt when a rental has a surprise, costly repair.

Calculator with the word cash flow

To arrive at your current or estimated cash flow number, take the gross rental income and subtract monthly expenses. It's essential to have a good idea of your potential cash flow before purchasing a property, but how can investors figure out a monthly rent amount and operating costs before owning a property? Working with a property management group in Ellenton, Fl, is the best way to plan an accurate estimate of potential expenses and determine the ideal rental rate for a new property.

Make a List of Potential Expenses

Most rental properties have the same types of expenses, with some additional costs here and there, depending on the property and how you choose to manage it. If the numbers add up to more costs than expected income, you might be looking at a property that isn't a good fit for your next investment.

If you're not sure of the investment property expenses that should make it onto your list, a property management firm can help! For this example, we'll include:

  • Mortgage: $450
  • Landlord insurance: $35
  • Property taxes: $187
  • Vacancy costs: $75
  • Repair reserves: $150
  • Property management fees: $120 (estimated at 8% of the rental income)
  • Total monthly expenses: $1,017

Note that property management fees vary between different companies and can be higher or lower depending on the services you choose from your property manager.

Property managers know that vacancy costs should be part of a property's estimated expenses because there's a good chance your property will experience at least a few empty days without rental income every year, even with excellent marketing screening, leasing, and placement practices.

Estimate Potential Rental Property Income

Now it's time for the question of "how much can I rent my house for?" While it's tempting to "pick" an amount that gives you plenty of cash after paying all of the costs outlined above, choosing the ideal rental rate is a much more information-driven exercise.

In many cases, investors can plan to charge around .08% to 1% of the home's purchase prices as a reasonable rental rate. However, before setting the rate based on those percentages, work with a property management team to provide rental market analysis. Studying similar properties, vacancy rates, and other market research helps investors set a rental rate that optimizes return on investment.

For this example, we'll set the monthly rent amount at $1,500. To determine cash flow, subtract the total estimated expenses ($1,017) from the monthly rent amount ($1,500). The anticipated monthly cash flow for this potential investment is $483.

Real estate conceptIs It Enough? Ask a Property Manager

Going into a new rental property investment without taking the time to review the numbers can leave you with a money-draining home that never pays off. If you're not that the estimated cash flow for a property is enough, talk with a Gulf Coast area property manager. They can help you analyze costs versus income to avoid a bad investment or move forward with a property that will generate an excellent ROI for your real estate investment portfolio.

An Ellenton Property Management Company Analyzes Cash Flow

It's never a good idea to make an investment decision without understanding the potential costs and expected income. Before you close on a property you think will be a great deal, take time to plan out what it will cost each month for operating expenses and estimate a monthly rental price based on comparable properties in your area. If those numbers don't look as promising as they did when you first saw them online or from the seller, then reconsider whether this really is such a wise investment after all.

Work with Gulf Coast Property Management Company to gather the numbers and insights you need to find properties with excellent ROI potential! If we can help you estimate costs and income for your next investment or deliver expert property management services, give us a call.

Run the numbers on your next investment before closing! Use our free Rental Property ROI Calculator.