When investors analyze a property, they usually start with the obvious expenses: mortgage payment, property taxes, insurance, and utilities (if not covered by tenants). But a property has a lot more costs than just the predictable monthly ones. There are expenses that don’t show up every month but are very real: vacancy, repairs, cleaning, waste management, lawn and snow care. Then there are expenses many investors simply leave out, like property management, accounting, bookkeeping, and occasional legal costs. Miss these and your cash flow projections aren’t just off — they can flip from positive to negative.
"Cut through the hype and emotion of any real estate market and accurately assess the inherent risks and rewards."
— DON R. CAMPBELL, REAL ESTATE INVESTING IN CANADA
The goal of running thorough numbers isn’t to talk yourself out of an investment — it’s to make sure you actually have one. An investment that cash flows after all expenses are included is an investment you can hold with confidence. One that only works when you leave half the costs out is a investment that will hurt you the moment reality shows up. Experienced investors include every line item, even the ones they manage themselves. If you self-manage a property, include a property management fee in your analysis — because one day you might not want to, and your numbers need to still work.