Expenses
Where do the financial estimates come from?

Rehab costs

These are estimated based on the age of the home and the prevailing crime rate of the neighborhood. Rehab costs go up by a few hundred dollars for every year old the house is. It is an estimate of what it might take to get the house rent-ready and also to replace any major items that might need to be replaced before you put the house into service as a rental, such as carpets, outdated kitchens and bathrooms, and deferred maintenance by the previous owner.
Hint: You won’t know the specifics until you inspect the house, so this is a general guideline ballpark estimate of what it might cost.
If the financial returns look bad with the rough estimate, you know that details of the rehab costs as discovered in your inspection might make or break the deal. You might be pleasantly that few repairs are needed, and if that is the case, simply adjust the number down.

Estimated monthly rents

We have built a very comprehensive automatic rental valuation model to calculate the Estimated Monthly Rent you can achieve, based upon actual rental contracts that have been signed in the area and the specifics of each house and its location. Over 30,000 rental comps per year across the Dallas-Fort Worth area, for example, are used to create this estimate. Our estimate is the rent you can get for the days-on-market that is typical of the location. To lease out your property faster, you will want to reduce rent a little, and this is recommended as vacancy costs you more lost revenue than having a slightly lower rent. In our product roadmap is a way to see even more exactly where you should set the rent to lease out more quickly.

Property taxes

This is the total of all property taxes charged by the city, school district, county, local services, and any special assessment zones, if known. This is useful to know because there can be significant differences based on where school district and city boundaries fall, for example, costing you hundreds more or less per year in taxes on one side of a street compared to another.
We do not simply take the taxes paid last year by whoever owned it as is commonly done. This is misleading because the previous owner could be getting any number of exemptions that you may (or may not) get, resulting in big differences in tax. Also, whatever was paid last year is probably lagging the market value significantly. Our data show it usually lags by up to to 20% and takes time to catch up. Instead we use the rate itself to compute the tax.
After the sale, you can expect the assessed value to catch up to what you paid within one to three years. Therefore, we base the percentage on the current market valuation of home, not on the assessed value from last year.
This is because we want you to base your deal on where those taxes will be in the near future and not be caught by surprise.

Management fees

For this we assume you hire a manager and they will charge 10% of the rent you collect every month. Some will charge less. If you work with a manager you can put their rate here. If you self-manage your property or live in it, you can turn this all the way to zero.

HOA

Homeowners association fees. If there are fees charged at this location, we will automatically pull them in from the listing. If per chance they are off, you have the ability to adjust them. If we believe the fees to be zero, it will show zero.

Insurance

This is a rough estimate of homeowner's insurance paid annually, based on the value, age of the house, and the presence of specific hazards in that location such as exposure to severe weather, and distance from a fire station. We do not take into account differences in liability coverage or deductibles but assume a level of coverage that would be acceptable to most landlords without "cutting corners". The cost to rebuild the house is probably going to be higher if it is worth more, which affects the insurance amount estimated here. Different carries will of course charge different rates too depending on your relationship with them.

Maintenance

This is a general assumption for how much you’re going to spend maintaining the house every year, including small items, and the cost of turning around the house between renters to occasionally repaint and re-carpet the property.

Listing fees

These are fees you will pay to an agent to place a renter in your property every time a tenant moves out. This fee is not “per time” but is annualized based on how often we think the leases will turn over in this location, based on the average lease lengths observed in the data for this location. So, if you can expect a tenant to turn over every 1.5 years, we will take the fees charged by the agent and adjust it to two-thirds of that figure.

Vacancy expenses

The cost of your property being empty, per year, based on how long it typically takes to re-lease a property in this location. We look at patterns in leases nearby to estimate this.

Capex reserve contribution

A simple flat fee you would expect to set aside very year to pay for replacement of major items like the roof and air conditioning system.

Net operating income

We sum up all of the expenses and subtract those expenses from the rent you earn in a year, and then divide it by your acquisition cost plus any rehab costs.
Last modified 6mo ago