Here’s an example house run the friendly way, then fixed one mistake at a time.
The rental on paper
Take a $260,000 house listed at $2,650 a month in rent. That passes the 1% rule, which is part of why it looks good. With 20% down on a 30-year loan at 7%, the mortgage is $1,384 a month.
On paper, you pay the mortgage, the seller’s tax bill of $200 a month and a $100 insurance guess, and keep the rest: $966 a month.
The seven mistakes, fixed one at a time
| Each month | |
|---|---|
| On paper | $966 |
| 1. The rent similar homes actually get: $2,400, not $2,650 | −$250 |
| 2. Empty months (5% of rent) | −$120 |
| 3. Repairs (5% of rent) | −$120 |
| 4. Money for big repairs (5% of rent) | −$120 |
| 5. The tax bill after the sale: $300, not $200 | −$100 |
| 6. A real insurance quote: $150, not $100 | −$50 |
| 7. Property management (10% of rent) | −$240 |
| Cash flow each month | −$34 |
Fixes 2, 3, 4 and 7 are shares of the $2,400 rent the house would actually get.
Why each mistake matters
1. Using the asking rent
A listing’s rent is what the seller hopes for. What matters is what similar homes nearby have actually rented for recently. Here the gap was $250 a month, the biggest single fix of the seven.
2. Leaving out empty months
Tenants move out, and the house earns nothing while you clean, repair and find the next one. Setting aside 5% of rent covers about 18 empty days a year.
3. Leaving out repairs
Something small breaks every year: a faucet, a disposal, a window. Setting aside a share of the rent keeps those bills from coming out of your own pocket.
4. Leaving out money for big repairs
Roofs, furnaces and water heaters don’t break every year, but they do wear out, and each one is a large bill. Setting a little aside every month spreads that bill out.
5. Using the seller’s tax bill
The seller may have owned the house for years at an older assessed value, the figure the county taxes. In many places a sale resets that value, and the new owner pays tax on the new price.
6. Guessing at insurance
A landlord policy often costs more than the homeowner’s policy the seller carried. A real quote for this address replaces the guess.
7. Counting your own time as free
Managing a rental yourself saves the fee, but the deal should still work if you ever hire a manager. Here, that fee alone turned a $206 monthly profit into a $34 loss.
What should you take from this?
Most of the seven fixes cost $120 a month or less. Together they moved this house from $966 a month to a $34 loss, and from passing the 1% rule to failing it at the rent it would actually get.
Run every listing with all seven costs in from the start. If a house only works with one of them left out, you’ve found the number to check before you make an offer. The 12-number checklist covers where to find each one.