Lets continue with the case study we started in part 1.
In this section, we’ll discuss the cash flow from our investment property.
First, we have to find what our monthly rent (income) will be. To find this, we look at comparable properties, and find that the lowest rent being paid for a property like ours is $1,200.
Income = Rent = $1,200
Now lets figure out our expenses. The expenses are made up of our mortgage payment, property taxes, and homeowners insurance. If there was an HOA we would have to add that in as well, but this property doesn’t have one.
Mortgage payment = $471
Property tax = $245
Insurance = $59
Total expenses = $472 + $245 + $59 = $776
Our net monthly income is:
Income – Expenses = $1,200 – $776 = $424
Our annual monthly income is:
Monthly income * 12 = $424 * 12 = $5,088
Our annual return on investment is our annual income divided by our cash out of pocket that we calculated here:
Annual income / Cash out of pocket = $5,088/$37,975 = 13.4%
In the next post, we’ll conclude this exercise and see how we ended up.