Nick Perry breaks down the cash flow calculation first-time landlords skip. On a $2,000 monthly rent, subtract the $1,200 mortgage, 10% for property management, and 10% for maintenance and vacancy. If you don't end up with positive cash flow, the property is a liability, not an investment.
If you're about to buy your first rental property, stop scrolling because here's the math that tells you if that house makes you money. Take the monthly rent, let's say $2,000, and subtract the mortgage, which is $1,200. That leaves $800, and most people stop right there because $800 a month sounds like income. But that's not cash flow because you owe 10% for property management and another 10% for maintenance and vacancy, which takes $400 off the top. So you're left with $400 of actual cash flow every month. And that's the only number that matters because if that number comes out negative, you're not buying an investment, you're buying a monthly bill you cover out of your own paycheck. So run the math on every deal, and if it doesn't work, walk away. Save this for your first deal.
