Once you get a property up and running, meaning that you have a tenant or multiple tenants in it, and you’re at the point where you are simply maintaining the property as well as possible, there are three ways you can be making money on the property.
These three combined create your return on investment (ROI) on the property.
Any good education piece is going to put this item at the top of the list. I too believe it needs to be there, although it is important to be aware, that it is possible to NOT be making any cashflow on the property and still be making money on the property. That situation would mean that as the landlord you are breaking even, expenses in are equal to expenses out, or that you are having to dump your own capital into the property each month in order to keep the property afloat. This may not be sustainable over a long period of time (depending on your personal finances), particularly if the deficit amount is great or if you have multiple properties in the same situation.
When determining whether or not a property cashflows you need to take your income (all the money coming into the property), be it rent, coin laundry, parking, storage etc., and subtract all your expenses. Expenses are the mortgage (principal and interest), insurance, taxes, property management, repairs and maintenance, money set aside for vacancy, (and maybe utilities, condo fees, lawn care or snow removal)–essentially all the expenses necessary to run a good steady property.
If you subtract your expenses from your income and you have a surplus, you know you are actually putting money in your pocket each month. This is the position you want to be in. If, on the other hand, you have a deficit when you subtract the income from the expenses, you know you’ll be dumping personal capital (your own cash money) into the property until you can create a surplus of funds.
I like to ensure I am making at least $100 a month on the majority of my properties to allow for some wiggle room each month in the event of interest rate hikes. With some other items, if they are consistently above estimated amounts, it is a good time to do an analysis of why and make any necessary adjustments. If nothing can be done, it is decision time. Do you need to sell to alleviate the monthly cashflow deficit? Can you continue on, and if so for how long? At what point do you know it is time to sell?