Will this make me money?

Underwriting Made Easy

Let’s say you have a property that you’re interested in as an investment long term rental. How do you underwrite for cash flow? Underwriting involves analyzing and projecting the potential income and expenses of a property to determine its financial viability. We’re going to go over some simple steps to follow:

Estimate rental potential:

Maintenance figures: Estimate the property's maintenance costs, such as repairs, insurance, taxes, and utilities, based on past expenses or industry standards.

Property Management: Determine the costs associated with managing the property, including salaries, advertising, and legal expenses.

Debt Service: Principal, Interest, Taxes, and Insurance (PITI). Calculate the monthly payments for any loans or mortgages associated with the property.

Vacancy and Maintenance: Take 10-20% off for maintenance costs and vacancy. Consider the potential vacancy rate and factor it into the projected rental income, as this will affect the property's overall cash flow.

In this example if your rental potential was $3000, your debt service is $2000, your property management is $300 (10%), and you factor in another $300 (10%) for maintenance and vacancy.

3000 - 2000 = 1000.

1000 - 300 - 300 = 400.

$400 cash flow