Posted by Bill W on November 18, 2000 at 16:17:11:
I’m not sure what you’re getting at from your post. Is the reason you would like the bank to figure the calculation the other way so that you can qualify more easily for a loan or are you talking about the cash flow you will have after all expenses have been paid? The banks, and most lenders, use a way to calculate your Net Operating Income (NOI) based on a formula that has proven itself over time. They take gross rents minus a vacancy and collections cost factor common in your area for a “projected” gross rents for the project. THEN, they subtract operating expenses for the project. These can be management, lawn service fees, snow removal fees (if any), taxes, insurance, an allowance for repairs and so on. After they subtract that money you will have a Net Operating Income (NOI). From this they expect you to pay the mortgages.
The amount you have left after mortgage payments is usually what you are referring to as being added to your income. This figure may seem low to you, but remember that the lender is being careful on their side of the deal, since, if you have even one vacancy you will immediately be in the red until you get another tenant. Your actual cash flow may be quite a bit more if you collect 100 percent of the rent money. More like $270 to $350 per month. Lenders calculate on the side of caution because it is not likely you will always have 100 percent occupancy by paying tenants.