I recently had a conversation with another investor who was adamant about finding investment properties that met the 2% Rule. This was their primary criteria for offering on rental property. Our conversation went something like this. 2% Investor: What rent-to-price ratio are you getting on your properties? Me: About 1.25%. 2% Investor: That’s not very good. You should shoot for 2%. I’m hitting 2% on my properties. Me: Umm, well…. That’s great. (nice comeback) Other than me feeling a bit patronized, what can you gather from this brief dialogue? Did you think it was … continue reading.
This post is about calculating cash flow. Don’t worry, there’s no fancy math here. I’ll get into more advanced cash flow and analysis in future posts. For now, the only prerequisite is some simple arithmetic that you learn in grade school. A common misconception on calculating the cash flow on a rental property is to think that it is simply the rent minus the mortgage (Principal & Interest), Taxes, and Insurance or PITI for short. If this is how you’re calculating cash flow then you will get badly burned. There are many more expenses that … continue reading.