Property Flip or Hold – How to Calculate Hold Assumptions Rent – Mo. Projections

Gross Income – Total income of rent received from tenants to pay for the space.

Vacancy Rate % – The percentage of time rental income is lost due to a property being not rented. Usually between 5% to 10% of the Gross Income.

Other Income – Any miscellaneous income other than rent like Vending Machines, Laundry Machines, Billboard, Signage, etc.

Effective Gross Income – Gross Income after considering vacancy and collection losses. Also known as Gross Operating Income.

  Gross Income
- Vacancy
+ Other Income
-----------------------------------------
= Effective Gross Income (Gross Operating Income)

Property Management % – Usually between 6% to 10% of the Gross Rent. Other Income is not part of the calculation.

Other Expenses – Can be used for any other expenses. For example, the Landlord might be responsible for lawn maintenance, pool cleaning, water…

Operating Expenses – Excluding loan payments, it’s all of the property expenses. For example Taxes, Insurance, Property Management, HOA, and any Other Expenses.

  Taxes
+ Insurance
+ Property Management
+ HOA (Homeowners Association Fees)
+ Other Expenses
-----------------------------------------
= Operating Expenses

Net Operating Income – Excluding loan payments, it’s the Net Operating Income for the property after all Expenses. It is used to compare rental properties without the use of financing.

  Effective Gross Income
- Operating Expenses
-----------------------------------------
= Net Operating Income

Cash Flow Mo. – Including loan payments, Cash Flow is the total net amount after taking Gross Income minus all of the Expenses including the P.I. (Principal & Interest on Mortgage).

  Net Operating Income
- P.I. (Principal & Interest on Mortgage)
------------------------------
= Cash Flow (mo.)