Four Square Rental Analysis

Within the expenses section, this is quite literally where we add all of our expenses. Keep in mind our expenses are consistent  but not direct every single month. Consistently we will have each of these expenses that we need to track. These expenses while consistent, does not mean that they actually leave your account every single month.  I like to view these as indirectly, expenses that occur however do not  force you to pay every single month.

Consistent Direct Expenses:  Are the PITI expenses:  Principal, Interest, taxes and Insurance.  within the expenses section of this 4 squares machine, you’ll notice is broken up into three different fields:  Mortgage, Taxes and Insurance.  Mortgage being the combination of principal and interest.

The next fields are Water/Sewer and Garbage.  In our Market in Baltimore City, Maryland,  we like to have Standard Market Value rent  and state that utilities are not include.  this means that our tenants must pay for the utilities themselves.  Therefore if I were to use the spreadsheet, every single property  would have $0 in the field for Water/Sewer Expenses. 

There might be some landlords that decide to pay that separately. 

Similarly, Garbage  is not an expense we incur in Baltimore City, Maryland. They’re 4 Hour field contains the value $0  each month.

Consistent InDirect Expenses:  these are the expenses that may not occur every single month however you need to plan for when they occur. It will always be “when”, not “if”.  it is only a matter of time for these expenses to occur.  for example first on our list is vacancy. At some point,  whether we like it or not there will be some form of turnover. Turnover is when the tenant leaves and there is a gap in service while we search for another tenant.  whether that is a matter of days weeks or months, we need to make sure that we capture some form of reserves for vacancy.

Similarly both repairs and capital expenditures are indirect expenses that may not happen every single month. To ensure we have a safety net and a certain amount of disposable income for when that repair or capital expenditure occurs, we will be ready to pay the bill. There’s nothing more stressful than having a maintenance or capital expenditure expense without having the funds  required. 

 the market can go up and down, and it doesn’t matter if you’re underwater as long as  you have enough cash to be able to pay for all these expenses.  This is the most important thing when acquiring rental properties, ensuring that you accurately list  and value your expenses to ensure you have the appropriate cash flow and Reserves to pay in the darkest of times.

 the property management fee is another fee that may or may not occur every month. Consistently it should occur as you should have a tenant in your property. This be depending upon the property management company in your Market, will range from 8% – 10%.  this is a negotiable expense especially depending upon how many properties you have with the property management company. For example with our property management company, the moment you have three properties all being managed by the same property management company, they will decrease the monthly property management fee from 10% to 8%.

 there are probably management companies that do not require a fee if the property is vacant for a certain number of months. Be sure to connect with your property management company and ask them this question especially if you are in the interview case and determining which property management company you want to work with.