Welcome to Hipster’s first how-to video! I’m going to show you how to run very quick numbers on a rental property. You can use this formula—so easy and so fast —for any property you’re looking at. It’s so straightforward. I’m going to do it on this little whiteboard here and use my calculator. (Yes, it is actually that large). I’ll be behind the scenes here doing my calculations while I write out what is going on. I’m using an actual rental property as an example. It has a purchase price (you have to love my handwriting) of $100,000.00. In rent (and always verify this before you buy any property. Verify it with property managers or… just verify it), this particular house gets $1075.00 in rent. This house is in Indianapolis. It was built in 2002, I think. Super-cute little house. Three bedroom, 2 bath. But all we care about right now are the numbers. I’m looking at this property. What do I want to take into consideration? I write out my list of things that I need numbers for first: taxes, insurance (again, don’t you love my handwriting), I always make an estimate for vacancies and repairs (which I’ll touch base on in a second), and then for me I always use property management so I have that line. That may be optional. For sure, you’re going to have taxes and insurance. Vacancies and repairs are really up for your best guess. I buy turnkeys so they’re already rehabbed. I use 7% for vacancies. You can look up the statistics of a particular city and see if that number is about right. And for repairs, like I said, fully rehabbed, so I just use 5% for repairs. If you calculate this, this particular house the taxes per month (and this is all monthly) are about $60.00 a month, which is excellent. Insurance on this property is about $45.00. Seven percent (and those percentages are of the monthly rent) of that is going to be $75.00. Repairs are going to be 5% which is $54.00. The property management in this case is 10% (should’ve put that there), and that would equal about $108.00. Total all those up. These are going to be all your expenses. Grand total: $342 for monthly expenses. Now, here’s your income: $1075.00. Here are your expenses: $342.00. So do $1075.00 minus $342.00 and if you buy this property for all cash in theory per month you should be getting $733.00. That is cash flow in your pocket per month. To calculate your cap rate, you are going to do $733.00 times 12 (because you want it annually) and the total amount that you paid for this house is $100,000.00, which is going to equal… calculations…8796 divided by 100,000…you’re going to get 0.088, which equals 8.8%. This is your cap rate. That is the main number. That’s going to explain to you kind of where the income is in relation to where the income is in relation to how

much you paid for the property I know you’re already asking (and I don’t even have an eraser… let’s see…hang on), I know you’re already asking “Well, what if I’m financing because I’ve got a mortgage?” Ok. Not a problem. Let’s erase this stuff. You already know your expenses. We’re going to get rid this section. We’ll leave that $324.00 for total expenses. (I guess I could’ve written a little smaller.) How do you deal with the mortgage? Well, $342.00 was your total expenses without a mortgage. All you need to do now is figure out what your mortgage payment per month is going to be. Go online, find any old mortgage online calculator, plug in the numbers and see what your payment is going to be. For this one, I used a 5% interest rate, and with 20% down (which is standard for an investment property), you’re going to have a loan of $80,000.00 (that’s an $80K loan). Your mortgage payment at a 5% interest rate is going to be $429.00 per month. Since the total expenses were $342.00 already, just add those to $429.00. This will be your new expenses… (am I doing that right?) $771.00. Yeah so now you have Now you have $1075.00 minus $771.00 is going to give you $304.00 per month. This is your new net income after the mortgage payment. On this house, you’re still bringing home $304.00 per month, which is ridiculous for a rental property. That’s amazing! That’s $300 easy in your pocket per month. The only thing you can do other than this is… you already have your cap rate…now you want to calculate your cash-on-cash return which ultimately for any purchase is all that matters. Cap rates only explain whether you’re getting a good price for the property or not. Your cash-on-cash is actually how much you’re making based on how much money you put into the deal. So, $304.00… make it annual, so times 12. Then, instead of using your total purchase price, you want to put in how much money you actually put into the deal. Your down payment on a $100,000.00 house was probably $20,000. thousand dollars I went ahead and rounded that up to $25,000 because you’re probably going to have about $5000.00 in closing cost. That’s going to give you 3648 divided by 25,000 equals 0.1459. Change that to a percentage and you are looking at a 14.6% cash-on-cash return. That is the number that you care about. If you are paying all cash for the property all you care about is this 8.8%, because your cap rate and your cash-on-cash will be the same for an all-cash buy. For a finance buy (and this explains perfectly why I’m such a fan of leveraging money as much as possible), you’re making almost 15% return on your money… on your actual cash that you invest. That’s amazing! With real estate prices gone up how they have, to be able to make a 15% cash-on-cash is great. This is a fully rehabbed house. Tenants are in it. Property managers are in place. The only work it took was for you to sign the papers and get a home inspection. Boom! There are your numbers. A very quick summary… We’ll see if I can erase this super fast. I’m not even going to try and erase it all. I’ll even do it in blue since I’m holding a blue marker here. Step ONE: Calculate your expenses. As a recap, that’s going to be your taxes, insurance, property management fees, and estimate for vacancy and repairs, and then if you have the mortgage, the mortgage expenses. You already know your income, so TWO: take your income minus your expenses and that will equal your net cash flow. Don’t ever buy a property that does not tell you that you’re going to get a positive…Let’s see… What did I say? Don’t ever buy a property that suggests you’re going to make a negative cash flow. You always, always want positive. THREE: Calculate the cap rate, which is your net income, times 12, divided by purchase price. FOUR: If you’re financing calculate your cash-on-cash… which is your net with the financing, times 12, divided by your cash in. As a clarification point, the cap rate does not include any financing cost. Your mortgage expense is not included in the expenses. It has nothing to do with the equation. That is standard. Cap rates do not include financing. It’s assuming an all-cash purchase, because whether you finance or not (I like to say) is your own problem. It has nothing to do with the purchase price. What matters for you financers is the cash-on-cash, which does in fact take into account the mortgage expense. That will calculate your official return. Alright? That’s easy rental property numbers. Another…one last disclaimer… this does not include rehabs. If you’re rehabbing a property you have got to include those costs in these equations. It takes a couple of extra steps. It’s still not a big deal. In general… a general formula for you. I hope it helps!

## 100 Comments

## Abay Singh

excellent video. What should be the min cap rate?

## T K

12% yield? nice

## Channsomean Vaung

I don't understand about the cash in ( 25,000$).could you explain?

## Charlie Ennis

This to me just does not sound worth it. The only upside is that people will always need to rent no matter the state of the economy. And I also get that after you pay the house off then you can keep all that extra money each month. But to only make an extra $300/m for 10 years? There are much better ways to make money without over 70% of your profit going towards expenses.

## Jed Wunderli

Additionally, leverage will allow you to turn a $100,000 cash buy into 4 $100,000 houses which will provide an investor with 4x the appreciation. Furthermore, there is the advantage of depreciation, plus all of the other write-offs not to mention the ability to defer capital gains when you sell these investment properties and re-up into higher dollar real estate.

## e K

Water? sewer? garbage?

## Hindu S

so well explained! you'd make a great teacher!

## Squid Rider

So in this example for the cash purchase, you're paying the investment off in ~11 years, THEN making money? You sink $100,000. earn $733 after expenses each month, to get your money back out of it, it will take ~11 years… I am just trying to understand what's going on.

## Nigel Miles

REHAB COSTS ?

## Kush Hazard

Quick question, should I take real estate for further knowledge of this? I'm signed up for the fall but not knowing if it'll be fully useful

## darwandoo

smart girl

## Qasim Dawood

very informative

## Paul Kumar

When calculating cash on cash return in the second part. When you added the mortgage payment. Did the mortgage payment include Principal plus Interest or interest only payment ?

## Ben Garcia

Prop. Mgmt. **

## Derek Smith

thanks hipsters!

## GB MusicCompany

Dope video!

## Benjamin Sheridan

Whoa!

## Ilse Tiburcio

Very simplistic video – thank you. In a mortgage case, what would you do with the income? Use it for another property or put it towards paying the property off?

## A. H.

Love the technical video. People complaining about the unrealistic numbers. Just change the numbers to fit your local 'realistic' market you cry babies. The important thing is the step by step calculation. Thanks for the great video. Subbed.

## Glenn Graham

You're a smart girl and I'd like to marry you

## LynVon Banks

What about carrying cost?

## Kevin Edwards

Wow…. awesome what's your contact information?

## Crackled

So you go to a property manager and ask them to calculate rent on a place you don't know own and they will do that? Is that how you find out the rent estimate??? Thanks for the video btw great help!

## Don Powell

can't you require tenant to have their own renters insurance?

## Bryan Pearce

Awesome

## Lisaxplore

I can't decide if it's better to invest 25% down on 6-8 properties or buy 2 or 3 out right.

## KuningaPower

who the fuck pays 1100 for 100k property. You can get max 500-700 from that imo

## Will P

How do you factor in a HELOC as a down payment? I would want the principle and interest of both loans to be covered by the rental income.

## Brian Arnold

what moron rents a 100k house for a 1k a month?!? Hippies suck.

## Abc 123

How do I get a value of a house I want to purchase? Who would I contact? A realtor, home inspector, someone else?

## no body

I'm in. where do I apply?

## william tyndall

Don't forget the equity your building each year. Its actually more than 14% return. Also there is the property appreciation for both situations. These numbers are not unrealistic. You just have to be patient and not pay too much.

## Coffee In TheMorning

It is that large ; )

## PM

I understand you are trying to be helpful, but the video is very misleading because it does not take into account capital expenditures (CAPEX). Without accounting for CAPEX, you might end up losing money. But you are in the business of selling turn keys and need to show higher cap rate to your investors, so the CAPEX is conveniently ignored.

## Jim Schubes

Super helpful, very detailed. If you want to get the Cap rate QUICKLY for any property you can go to this cap rate calculator https://apartmentpropertyvaluation.com/

## Ilse Tiburcio

Great Video – easy to follow.

I have a mortgage being paid off, need 13 more years. If I buy another propert to rent, with a loan, what do I do with the profit? Use it to pay my property or pay the rental property?

## Patricia Luna

In my experience there are decent properties that cost 65,000 but the property taxes are close to 3000

## Marcos Machado Dos Santos

Great explanation!!!!!

## Ralph Sayegh

How about closing costs ? And other expenditures that relate to the deal itself ?

## Matt buys houses Investor

I’m very turned on by women like this..

## Parhomenko Valya

Were is the capital repayments? If the property falls in value to $80,000 your deposit is gone! What a stupid greedy woman. why don't you stay at home and cook instead of living the life of a parasite.

## SociallyIneptFailure

so are most of the people making these how-to videos wealthy as shit, and just helping for the sake of being helpful, or are they failing in rental property investing, and in turn becoming gurus?

## famousstar796

Thanks easy peazy lemon squeezy

## Soren B

really clear and to the point. great video thanks

## Caleb Huff

These numbers are extremely generous. $1075 for a $100k home? Booking agents take 10% but property managers take more like 25%.

## John G

Why are utilities (water bill, light bill …) not included?

## John G

Is it possible for a FIRST-TIME home owner to be granted an FHA LOAN to purchase a small multi-family apartment building with 5-20 units. Please reply. Great teacher.

## FAIRNESS PAUL

What happen when rent is not paid,

## Pete Singh

Woh, I like to move up there and save tons of money on taxes as long as you are not in snow

## Glenn

What do I need to ask about a property before I buy it? Either our realtor or the owner.

## eljuancho2

Thank you very much!

## Space Monkey

So basically cut your numbers in half. Any place that rents for 1k would be 200k.

## Crottinger

Everybody is a critic.

## E Galindo

Thank you for such a good video. Good luck on your investing

## luismiguel4156

60 tax munth , are you out of your main , I paid 2600 last year in a horrible neighborhood

## Stephen Williams

EXCELLENT

## kevinerosa

Great video. The only thing you forgot to mention is that this is your pretax cash flow. Uncle sam always gets a piece of the NOI. Also to the losers that say imaginary numbers, if you cant think for yourself past an example, stay away! You will get eaten alive by people like me.

## André Mariano

and what's a good cap rate? O.o

## Spooner Bros

do you wanna shoot for around an 8% caprate with or without a mortgage? i’ve always done it with a mortgage.

## Gabriel

What Real Estate advocates never say is that this “amazing” Cash on Cash return is not compounded, which is a huge difference in the long run. I´d rather put those 25k in the S&P500. In the last 5 years, since this video was uploaded, the annual compounded return of the index (dividend reinvested) has been around 14% to 15%. Again, compounded, not cash on cash and you don´t need to find the “right deal”, just buy any ETF that tracks the index by clicking “buy” from your sofa.

## bob barker

That $100k house is definitely going to need renovations after that you can increase the rent

## REAL ESTATE INVESTMENT FUTURE

I'm new the real estate investment and I wanted to know if the insurance and tax are included in your mortgage?

## Vernon Wang

One other expense you can account for is capital expenditures.

## Robert Manderson

You missed a zero off the purchase price.Where do you buy a house for $100K?

## Nemanja Stojanovic

You didn't calculate Service charge which is in Miami 800dollars per month for 1 bedroom apartment

## Gerry N

Thank you for the video!

This may be a stupid comment but come Tax time do you have to pay Tax on the income received from the property? Especially if it isn’t your primary source or is that inclusive of the property tax?

## Home Grown

How about VA loan with no money down how you gonna calculate for COC?

## BASSic - Bass Boosted Music

You should teach. I feel enlightened.

## Nicholas Harris

Your making it difficult to understand. It’s not that hard. Buy a house. Figure out the mortgage and property taxes. Than charge double the mortgage price!

## Ann Vill

Great information and so clear. Thank you!!

## Jonah Lamb

At the lowest I would do a 10% cash on cash return

## Mo Black Money

Fuzzy math at best.. All you did was calculate the numbers without including the outstanding debt to make it look like you received a nice return.. you cant pretend as if you don't owe the debt.. when you include your total risk which is 100,000, you're only making a 3.6% return.. stop pretending as if the $80,000 owed doesn't exist.. You're risk is extremely high.. If the house went vacant for 4 months you're in the red for the yr.. even if you rent it for the remaining 8 month you're still in the red…

## Eric Chaussé

Your numbers are good, the problem is in the number of units. You're telling me you're going to go through all that headache (financing, or in cash purchase) just for $340 a month? YOU'RE INSANE. My advice, buy at least 16 to 32 units. Then you'll really start making money. "One door, no more". Grant Cardone".

## Erlind Latifi

$100.000 house ..rent for $1075.a month ..taxes $ 60 per month…..all numbers are wrong here…I paused the video and I won't waste my time anymore…come on people make some sense .. look at the real life ..stop dreaming

## ppns2726

Your taxes are to low. Your not making money

## Alfonso Rico

Oh yeah yeah

## Woody Clark

Thank you.

## J S

Why am I getting $650 for the mortgage? What am I missing.

## Sarah Robertson

So then, where do you put that cash flow until you're ready to invest it in another property?

## Sam

Great work. 👍🙏

## Carey Campbell

Perfect timing. I'm going to look at a few places this week. Thanks.

## edin edy

What obout depreciation? Whay you did not iclude depreciation?

## Whoever Whoever

taxes, i assume included property tax? really? $60? The property tax for my 2 plex in Chicago is $6600/yr. that's over $500/mo.

## Louis

In Westchester New York the taxes in 200 k house is around 10 k per year is so expensive is another mortgage

## trang nguyen

You forgot about a total year you pay for tax and insurance

## Bz

2 gallons of paint is $50 !!!

## Bz

Repairs ,,, $54 or $648 a year !!! Did not realize maintenance cost more ,,, those numbers even on a ball park figure are off big !!!

## Bz

Cash on cash will take 7 years to break even !!!

If you don’t get your money back in 3 years ,,,,,pass. !!!

## Bz

Invest $50,000 put in $25.000 and flip for $125.000. 6 months

That’s what I’m talking about

Profit $50K ROI is huge and more sensible

She used finite example with low profits big ,,, with repairs too low and the numbers she presents your profit is 0 and it’s only equity you make money on which will take you decades to make money

Wouldn’t invest my money with those figures no way

## Walina1001

You are explaining cap rates incorrectly. Cap rates come from an income approach to value called direct capitalization. There is never a need for an investor to calculate a cap rate. They come from cap rate comps. If you have a market price you are WASTING your time since you use cap rates to VALUE a property. See how you are being redundant? If you are in a 12% cap rate market you just grossly overpaid on that property by using cap rates backwards.

## Ricardo Valls

How come you don't include the utilities in your expenses calculations?

## Walina1001

Are you going to explain how you get a negative cap rate? I would like to think you are not a scammer and just uninformed. Please show your calculations. It should be easy for someone that claims it is possible.

## Walina1001

Ali Boone, you have had a week to show your calculations to get a negative cap rate. The fact that you have not done so proves that you are clueless and probably a REAL ESTATE SCAMMER.

## Miguel Teran-Raful

Where can I find vacancy rates by zip code? please help. Really good video thank you.

## Walina1001

Are you that ignorant about basic real estate concepts or are you just a scammer like Clayton Morris. Why are you being so evasive about supporting your claim that you can calculate a negative cap rate. How do you sleep at night?

## John Doe

Do you include any allowance for evictions or lost rent from the tenants who stop paying? I’ve never seen an allowance for that in an ROI calculation video but that could crush a small investor. Thanks for the video. Any info would be helpful.

## Eric Diaz

Can someone please tell me for the love of god how people come up with the taxes and insurance on a property when it comes to analyzing a deal? Also, how can someone come up with the accurate rental/mo numbers?

## Swurl szs

This was valuable info, thank you. You just helped me decide not to rent my condo and buy another. I didn't factor in non vacancy and it would've been negative cash flow.

## gl55122

Done right.

## Benrabah Mohamed

Thanks for the helpful video.