The most common mistake people make when buying investment property is underestimating the expenses. If you simply look at the scheduled monthly rent and subtract your mortgage payment, you are missing a significant portion of the expenses. In addition to principal, interest, taxes and insurance, you must also factor in vacancy (which is not technically an expense, but it reduces your collected rents), repairs, capital expenditures (roofs, HVAC equipment, etc.), management fees (even if you self-manage, you are spending your time and gas money) and evictions. Even if your tenants take good care of your property, there will be cleaning, re-painting and minor repairs when the property turns over. I like to aim for my monthly scheduled rent to be double the amount of my mortgage payment, including the tax and insurance. So if my mortgage payment is $400, I want the rent to be at least $800. This rule assures that I will have positive cash flow over the long term.

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