The 50 percent nickname says operating costs, not counting the mortgage, will take about half of gross rent. It is a sentence people repeat because it is short. It is not a measurement, and it is not a standard published by a lender or an appraiser. On a building with a dull tax bill, a bindable policy, and a young roof, half of rent might turn out to be in the neighborhood of the truth. On a building with a post-sale reassessment, a wind deductible, or a master water meter, the nickname is how a monthly surplus appears on a napkin and disappears in the account.
This page is the stack you can argue with. Pair it with the underwriting sequence, which tells you when to pull each document. The Deal Analyzer still uses this site’s 1.5 percent of price annual plug until you override the story in your own sheet. Know that before you screenshot the result.
Gross rent is not the money you collect
Start with rent you can lease, from a lease or from leased comps, as the gross rent multiplier page also insists. Then take off what does not arrive. Vacancy is the days the unit is empty. Credit loss is the rent you billed and did not get. Concessions are the free weeks hiding inside a “full” lease. A gross rent multiplier and the 1 percent screen both stop before this paragraph. That is why they are screens. The stack starts where they stop.
Other income joins only when it is collected. A laundry machine that might be installed next spring is not income this year.
The lines that have to be documents
Property tax
Use the bill to identify the parcel, then replace the dollar figure with the tax that follows a sale if this county reassesses. A longtime owner’s low bill is a common way a listing looks spendable. Ask the method. Write it next to the line. If you leave the seller’s number because the question was annoying, you underwrote their life, not yours.
Insurance, including the deductible you would have to write
Quote landlord coverage at the address. Occupancy changes the policy: a homeowner policy on a building you will rent is the wrong contract. If the carrier’s deductible on wind or hail is large, treat a hit as a capital spending event in the reserve, not as a detail inside the premium. Flood, if the lender or the map requires it, is its own premium. No quote, no line, no deal.
Association dues, licenses, and owner-paid utilities
Dues are not “maybe.” Read the resale packet. A special assessment the board has already discussed is a bill with a date, even if it is not in this month’s coupon. City rental licenses and inspection fees belong here too.
Utilities you pay are in the leases, not in your hope. Master-meter water, a shared boiler, trash, a well’s electric bill: if the owner paid it last year, assume you will pay it until a new lease says otherwise. The seller’s “tenants pay everything” line fails this test often enough to read the lease twice.
Upkeep versus the long cycle
Repairs keep the current year habitable: a clog, a lock, a broken sash. Capital spending replaces the thing that wears out on a calendar: roof, heat, water heating, sewer lateral, flooring. The 50 percent nickname buries both. A strict net operating income often keeps capital spending out of the expense total and in a reserve. Show both presentations if you want, and label them. Do not drop the reserve because a friend said cap rate excludes it. You still write the check. The glossary separates repairs from capital spending in plain language. Use that distinction in the sheet so a fat cash-flow line is not secretly a gift from a roof you refused to reserve.
Management, or the job you are not invoicing
A management fee is an operating cost. Your own labor is a cost you can pretend is a lifestyle. Pretending does not change the hours. If you might hire later — distance, a second building, a year you do not want the calls — underwrite the fee now. The self-manage versus hire guide is about that contract. A deal that only works at a zero management line is a deal that only works if you keep the job.
Turnover as its own line
Paint, clean, and a week or three of vacancy are not “repairs” and they are not “5 percent” unless this building’s history says so. A unit that turns every year spends more of its rent on the turn than a unit that holds a tenant for several years. Use the leases you have, not a proverb.
What net operating income is after the stack exists
Add the rent you can defend. Subtract vacancy, credit loss, and concessions. Add other income you can tie to a deposit. Subtract taxes at the post-sale estimate, insurance at the quote, dues, licenses, owner-paid utilities, repairs, and the management line. Decide whether the capital reserve sits inside that subtraction or beside it, and say which version you are showing. What remains, before debt service and before your personal taxes, is the operating income you can take into a cap rate.
Cash flow is that income minus debt service. People mix the two and then argue about “the cap.” The cap rate guide keeps the mortgage out of the ratio on purpose. This page is where the mortgage is still waiting in the hallway. Do not subtract it twice, and do not forget it when you tell yourself you can hold the building.
A worksheet you can copy without borrowing a fake building
- Gross rent you can support with a lease or leased comps.
- Vacancy and concessions from this building, in money, not in a proverb.
- Other income with a source.
- Taxes, with the post-sale method written beside them.
- Insurance quote, date, and any deductible large enough to hurt.
- Association dues and rental licenses.
- Owner-paid utilities and contracted services.
- Repairs you expect in an ordinary year.
- Capital reserve for the ages you already know.
- Management fee or a note that you are buying the job.
- Debt service from the loan estimate, kept off the operating-income total and on the cash-flow total.
If lines 4 through 7 are still blank, you are in the listing-photo phase. Stop quoting a cash-flow number, including a number this site’s tools printed from the 1.5 percent plug. The mistake detector is useful when those blanks are filled with the unflattering versions. It is theater when they are not.
Associations can also levy costs the monthly dues do not show. Read the reserves and the minutes. A special assessment is your share of a bill the board already sees coming.
The habit that replaces the nickname
Never say a monthly surplus out loud without the insurance quote date and the tax method in the same breath. Numbers without those two footnotes are marketing, whether they came from a seller, a forum, or a calculator. The 50 percent sentence can stay in your head as a joke you tell after the stack is full. It cannot stay as the stack.
This worksheet is education. It is not a pro forma for any address, and it is not tax or insurance advice. The bills are local. Go get them.