How to run the numbers on a rental, and the 14 lines most pro formas leave out

Nobody enters bad insurance. They enter no insurance.

That is the whole problem with a spreadsheet. A blank cell looks exactly like a correct one. It does not turn red, it does not warn you, and the total at the bottom looks exactly like a real return. You do not find out the line was missing until the money is already spent.

So this is not an article about how to calculate cash flow. You can do that. It is a list of the lines that go missing, why each one gets skipped, and where to get the real figure instead of a rule of thumb.

The four that get forgotten most

1. Property tax after reassessment

Most counties reassess when a property changes hands. The tax on the listing is what the current owner pays, based on an assessment that may be decades old. You inherit the property. You do not inherit their assessment.

This is the single largest miss on most first deals, and it is not close. A property assessed at half its sale price will roughly double its tax bill on transfer.

Where to find it: your county assessor publishes the assessment ratio and the millage rate. Multiply your purchase price by the ratio, then apply the millage. If the county has a transfer-triggered reassessment rule, it will say so on the same page.

2. Insurance, quoted for this address

Not the seller's premium. Theirs reflects their claims history, their deductible and often a policy type you are not buying. A landlord policy is not a homeowner policy, and if the property needs loss-of-rent coverage or sits in a flood zone, those are separate line items, not a rounding error.

Where to find it: call a broker with the address, the year built, the roof age and the intended use. Ten minutes on the phone beats any percentage-of-value shortcut.

3. Lease-up, held apart from vacancy

Vacancy is the rent you lose while the unit sits empty. Lease-up is what you pay to fill it: advertising, screening, and in most markets a placement fee to an agent. They are two costs. Most models carry one, and usually as a single vacancy percentage that quietly absorbs both.

Where to find it: ask two property managers in the market what they charge to place a tenant, and what their average days-on-market is. Both numbers, not one.

4. CapEx, held apart from maintenance

Maintenance is the leaking tap. CapEx is the roof. Blending them into one percentage is how a deal looks fine for four years and then eats a year of cash flow in a single week.

Where to find it: age the components. A roof with eight years left on a twenty-five year life is not the same reserve as one replaced last spring. Get the age of the roof, the furnace, the water heater and the service panel during the inspection, and reserve against each.

The ten that follow

These are smaller individually. Together they are usually the difference between a deal that clears and one that does not.

• Management. You plan to self-manage, so you price it at zero
• Owner-paid utilities. Water, sewer, trash and common electric on multi-unit
• Snow and lawn. Seasonal, so it falls out of a monthly model
• Registration and inspection fees. Many municipalities require both, annually
• HOA dues and special assessments. The dues get entered. The assessments do not
• Turnover make-ready. Paint and clean between tenants, separate from maintenance
• Bad debt. Some rent is never collected. It is not vacancy
• Loan origination and points. Entered as part of the down payment, or not at all
• Title, settlement and recording. Real money at closing, absent from most cash-to-close figures
• Escrow prepaids. Lenders collect months of tax and insurance up front

The one that is not a cost

Price management even when you plan to self-manage.

Not because you are wrong to self-manage. Because the cost arrives whether or not your model expected it: the moment you take a job, move, or simply get tired of the phone calls. A deal that only works while you work for it for free is a job you bought, and a buyer will price management in when you sell it.

What to do with all of this

Put every line in, including the ones you intend to be zero. A line entered as zero is a decision. A line that is absent is an accident, and the two look identical at the bottom of a spreadsheet.

Then check the ones that are local. Tax, insurance, vacancy and management all vary by county and by market, and any article that hands you a national percentage for them, including this one, is guessing on your behalf.