The most fundamental piece of determining whether an investment makes sense can all be boiled down to one subject: math. Before you start having flashbacks to your high school algebra teacher and your desk with the gum stuck to it, fear not. The math you’ll be doing is a simple formula to see if your property will cashflow. Here is the formula you’ll want to follow for any deal you’re considering: income minus expenses equals cashflow. That’s it. Simple, right?
In the video below, I itemize the main expenses you’ll need to know. A lot of the numbers you’ll need can actually be found on Zillow, including the estimated mortgage and property taxes. Obviously, I want you to dig into these numbers and verify them, but they’re a useful starting point. If the numbers don’t work on the initial calculation, then it isn’t worth your time.
I frequently have people asking me if a certain property is a good investment. Basically, they are waiting for my blessing, which is not an empowered strategy for your investing. You have to be able to run the numbers yourself, or you could be pushed into a bad investment by someone. I see this happen to people all too frequently who have misplaced their trust into investing “gurus” who are only trying to get low dollar investors.
Do your own footwork. If the numbers work, then it’s time to double-check the expenses and the rental income and do the rest of your due diligence. But don’t get discouraged: in this hot market, most listings don’t work. That is why it’s up to you to always be looking for new listings and running your own numbers on those leads. Doing a little math now can spare you a lot of wasted time and money in the long run.