So what does cash flow mean?

a. Mortgage payments minus rents equal cash flow (MP – R = CF).

b. PITI (principle, interest, taxes, insurance) minus rents equal cash flow (PITI – R = CF).

c. PITI minus 25% vacancy allowance minus rents equal cash flow (PITI – V – R = CF).

d. Click here for the LandlordLifeline.com Cash Flow - Rental Property Formula.

My techno skills a way too marginal to put the answer upside and backwards at the bottom of the page… if you haven’t clicked on the LandlordLifeline.com Cash Flow Rental Property Formula link by now – go back – read thoroughly – then we’ll proceed. “d” is the answer.

It usually doesn’t take much more than the first major plumbing repair* to zero in on the details of cash flow reality – then a tenant moves out owing rent – a boiler goes out in January… feel free to fill in the blanks with your own stories… we all have them. Wisdom would be to plan cash flow details before buying a property, but is that possible?

Our cash flow formula may not have every last detail, but it is a compilation of years of experience. It will help.

Yes, I do calculate cash flow with this much detail before purchasing a property. If it turns out that expenses are lower, profits are higher. Win/Win!

As a thank you to LandlordLifeline.com for providing this information free of charge, would you, please, send our link – or just our website name – to as many folks as you can think of:

· Investors

· Realtors

· Networking groups

· Mortgage brokers

· Bankers

· Your friend who owns one rental house

*Not the first major plumbing repair but a memorable one is the tenant who left her two carat diamond engagement ring on the toilet tank as she jumped in the shower. Her two-year-old daughter flushed it down the toilet! This was a large duplex unit where we had finished the basement to include installing an ejector pump so there could be a basement bathroom and laundry. The expensive repair – and great news for the tenant was that the plumber found the ring inside the ejector pump. She baked cookies for the plumber and gladly paid his bill.

Thanks,

B

So you don’t own a tool box… don’t want to tote around a repair manual on how to fix the clogged p-trap under the sink …or for that matter don’t really have the time to learn what the heck a p-trap is… how about home warranties for your rental properties?

Basically, a home warranty is a policy purchased at the time the property is purchased.  It provides coverage for a wide variety of things that can go wrong:

·         Heating, plumbing, electrical (sometimes roof)

·         Appliances and hot water heaters

·         Sometimes new windows, doors and even carpet can be included

Policies are usually paid for by the seller and can be negotiated as part of the purchase.  These policies are traditionally thought of as owner occupied property coverage, but I have checked recently with some of the companies that I have done business with…they do cover rental and investment properties.

Home Warranty of America responded “Barbara, yes you can have the warranty on a rental property, we do cover up to a four-plex… If you would like more info or have more questions, feel free to reply or give us a call at 888-492-7359.”

Blue Ribbon Home Warranty is Colorado based and I have used their policies for properties I have sold for years.

There are numerous other companies just a “Google” away!  Ask local realtors for references on ones they have had good response from over the years.

Cost? …in Colorado warranties start around $600, but it stands to reason that other areas may vary.  Again, the seller pays for it when you first buy the property.  You would have to pay for renewals.

How does it work? Most home warranty companies have local contractors that provide the repairs, so you can’t call Uncle Joe to fix the roof and expect the home warranty to pay him.  You have to call the warranty company for them to send out their contractor.

 So why doesn’t everyone just have home warranties on their rental properties?  For some of us the adrenalin of hunting down the best deal on the property… negotiating the very best purchase price…shopping for the best bargains for remodel and working endless hours making it “just the best rental” ever is part of what this is all about.

But… there are times that just picking up the phone when a refrigerator is not working has its appeal.

If anyone is using home warranties on rental properties, we would love your feedback.

Thanks!

B

The High Efficiency Toilet

When my great-grandparents built the “new house” in 1923 they included modern plumbing… for women and small children, the facility for men and boys remained the one with a crescent moon silhouette cut in the door.  The new bathroom was a “green” system: bath and flush water electrically pumped from the rain-catch cistern.  Waste water was sent to the septic tank and then into the leech fields for sub-irrigation.  Use and re-use for a minimal cost, the farmer’s ideal.

It’s inconceivable that such a system would accommodate a contemporary bath.  Statistically the modern bathroom uses about 75% of the indoor water consumption per household.  The toilet by itself accounts for nearly 30% of the indoor usage.

“Jiggle the handle” simply doesn’t cut it in today’s world.  A leaky toilet can waste a couple of hundred gallons of water each and every day.  The current industry standard is 1.6 gallons per flush (gpf) down from 3.5 to 7 gallons of older toilets.  High efficiency toilets (HETs) further reduce the level of water usage with a standard of 1.28 gpf, or less.

HETs are available in four classes:  gravity fed single-flush, dual-flush, pressure assist, power assist. 

·         Gravity-fed single-flush toilets are the most common and economical, typically, using about 1.1 to 1.28 gpf. 

·         Dual-flush toilets utilize light and heavy flushes with a norm of 0.8 to 1.1 gpf for light duty and 1.3 to 1.6 gpf for heavy duty. 

·         Pressure assist toilets use water line pressure or an in-tank device to create air pressure to increase the flush force and typically use 1.1 to 1.2 gpf. 

·         Power assist toilet incorporate an electrical pump to generate higher velocity flushes and use between 1.0 and 1.3 gpf and are also available in dual-flush models.

Toilets like any other household item can cost as much as you wish to spend, but a good high efficiency gravity-fed single-flush toilet is also affordable, usually around $100-150.

A bright spot for those who are upgrading from older toilets is that you may be able to get a rebate.  Check with your local water district for availability.  Even if no rebate is available your new HET will literally pay for itself during the first few years after installation.  Home Depot Eco Options has an easy to use calculator for water savings (click the Water Conservation tab and then WaterSense toilets in left column) using EPA WaterSense labeled high efficiency toilets.

Ardon44