How to Qualify a residential investment property

Cash Out : Purchase and Operating expenses of the investment. We have to consider how much money the investment costs, how and when the money goes into the investment during its lifetime

Cash In :  Yearly cash flow, plus a large cash flow at the time of sale.  How much money the investment produces and at what time.

Risk : How predictable is the cash flow? Investors seek higher financial returns when they feel like they have higher risks. For example: purchasing a property with a loan increases the risk but it might be still worth it since it increases the revenue. Some areas are more risky than other so if you buy in a riskier area you will want a biggest profit

Costs To calculate the return of a rental property you have to include: purchase price, closing costs, renovation costs, maintenance costs, vacancy, real estate taxes, loan interest, and selling costs, all for several years down the line. 

What is good, however, is that the portion of the loan that goes toward the principal is money that goes to you: in most cases, both depreciation and interest paid can be deducted from your income to lower your taxable income (confirm this with your accountant). Let’s see if we can put all of this together but first let’s look at this simple excel example: