After I know what my expenses are going to be, I then look at the market and try to determine what amount of rent I should be able to collect. Instead of simply finding my break-even point, I start by looking at the local market where the property is located and go from there. With this number, I can then determine how much profit I will expect each month — and each year.

Then take the yearly profit divided by your down payment (plus closing costs) to get your cash-on-cash rate of return. I also like to look at the rate of return that includes princial paydown on the loan. It’s up to you what number is going to make it worthwhile. I don’t have a magic number that I like to use, but it has to be a positive one — that’s for sure.

I know this may not answer your question entirely, but without all the information it’s tough for me to form an opinion. Hopefully these formulas will get you started, though. These are some of the preliminary ones I run myself.

N.W.

I found your website after reading a comment you posted on bankdeals.blogspot.com.

I as well am contemplating a rental property. I’m in California. The property houses 3 families, 1 single unit and a duplex. It will most likely be owner financed since they will be taxed heavily. I will not, nor any relatives be moving in. Assuming prop taxes is $6000/yr and the mortgage to be $2000/mth, how much rent do you think I must collect to be considered a worth while investment.

Maybe you can email me and we can correspond further.