Posted on October 14th, 2018
Typical rule of thumb in this market…. 1.3 to 1.6% of the purchase price per month if you self manage. For instance, a 250k property should gross around 3500 per month. Your net profit will vary greatly depending on whether the property is financed, the terms of the financing, or if it is a cash purchase.
It’s important to understand the following:
What is Gross Income?
Gross income is the total amount you earn (typically over the course of a year) before expenses. Think of gross income as the profit you’ve made from the services you provide—the sum of all your client billings before any deductions, taxes, or withholding.
For example, if your guest income from the past year added up to $90,000 in revenue, that number is your gross income.
Gross income is a helpful way to look at the revenue potential of your business and to assess how you are doing from year to year.
What is Net Income?
Net income is the profit your business earns after expenses and allowable deductions. To calculate net income, take your gross income and subtract all of your business expenses—marketing or advertising costs, travel or office expenses, tax payments, etc.—as well as any deductions you may be eligible for such as a home office space, retirement plan, or legal and professional fees. Please consult your CPA for more info.
For example, if your business expenses for the year totaled $30,000, your net income would be $60,000. ($90,000 – $30,000). For these numbers to be remotely accurate you’re looking at a 500K++ property. Please adjust them according to your purchase price.
Knowing your net and gross income is an important part of managing a successful business and can help you make important decisions such as when to raise your rates, whether or not certain expenses are necessary, and the types of projects and clients that should be your primary focus.