Quiz: Rental Income Modeling | Learn

1. A property rents for $2,000/month. Using a 5% vacancy factor, your effective gross income per year is:

$24,000$22,800$23,000$20,000

Gross potential rent = $2,000 x 12 = $24,000. Apply 5% vacancy: $24,000 x 0.95 = $22,800. Always model vacancy even if the property is currently 100% occupied. Tenants leave, units need turns, and markets soften.

2. The 50% rule is a quick screening tool that estimates:

Half of all deals are badOperating expenses (excluding debt service) will consume approximately 50% of gross rentYou should offer 50% of asking priceVacancy will be 50%

The 50% rule estimates that taxes, insurance, maintenance, vacancy, management, and other operating expenses total roughly half of gross rental income. So on $2,000/month gross rent, expect ~$1,000/month in expenses before your mortgage payment. It's a screening tool, not a substitute for full underwriting.

3. Rent comps are most reliable when they come from:

The seller's opinion of what the unit should rent forSimilar units within a half-mile that have actually leased within the past 3-6 monthsZillow's nationwide rent estimateWhat a neighbor says they charge

Reliable rent comps come from recently leased (not just listed) units that are comparable in size, condition, location, and amenities. Listing prices reflect aspirations; actual lease prices reflect what the market will pay. Proximity and recency matter.

4. Including a capital expenditure (CapEx) reserve in your cash flow model accounts for:

Monthly utility billsLarge, infrequent expenses like roof replacement, HVAC, and water heaters that don't occur every yearThe mortgage paymentProperty management fees

CapEx reserves set aside money monthly for major components that wear out over long cycles. A $10,000 roof lasting 25 years costs $33/month in reserve. Without CapEx reserves, your cash flow looks great until you need a $15,000 roof and have to fund it out of pocket.

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