For beginners, running the numbers on a potential real estate deal can seem complicated.
It doesn’t have to be.
If you’ve been practicing good budgeting habits with your personal finances, this part should actually be easy.
The key is simple: more needs to come in than goes out.
When you have more coming in than going out, that means you have positive cash flow.
For lawyers and professionals acquiring rental properties to accelerate our journeys to financial freedom, we don’t need to overcomplicate things.
What we need to know is whether a property is going to put more money in our pockets than it takes out.
Today, we’ll look at a real example of how I quickly and easily evaluate potential deals in my primary market.
If you haven’t already, check out my previous post on evaluating real estate deals for a detailed explanation on why I focus on the below elements.
As a quick refresher, let’s first look at the fixed costs and speculative costs involved in evaluating rental properties.
There are fixed costs and speculative costs involved in evaluating a rental property.
Whenever you evaluate a rental property, there are some fixed costs and some speculative costs involved. This holds true whether you are a beginner or an experienced investor.
It’s helpful to differentiate between the fixed costs and the speculative costs. In a lot of ways, we can control the fixed costs, but we cannot control the speculative costs.
Fixed costs generally include reoccurring monthly bills that are relatively constant.
The main fixed costs you’ll want to know when evaluating a rental property include:
- Mortgage payment (Principal and Interest)
- Taxes
- Insurance
- Utility Bills
- Property Upkeep
- Preventive Maintenance
Speculative costs include those unpredictable, irregular costs that do not occur every month and maybe don’t even occur every year.
I separate the speculative costs into three main categories:
- Vacancy Rate
- Unexpected Repairs
- Property Improvements
Vacancy rate refers to the percentage of available units that are unoccupied at a particular time. When running the numbers on a prospective rental property, I recommend adding in the cost of 5% vacancy.
When you own rental properties, things are going to break and require money to fix. If you target properties in decent condition, I recommend saving 5% of the monthly rent for unexpected maintenance.
If you don’t improve your property over time, you risk your unit becoming unattractive. Again, if you target decent properties to begin with, I recommend saving another 5% per month for property improvements.
With these costs in mind, we can now quickly and effectively run the numbers on any available property.
Let’s take a look at a property that recently became available in my target market of Chicago.
I regularly check available properties in my target area in Chicago.
I have a searched saved on the Redfin app for multifamily properties within a certain price range in my target areas of Chicago.
That makes it easy to scroll through the listings a few times every week to keep myself educated on my local market.
I do this for a few reasons, regardless of whether I’m actively shopping for a property.

First, I want to know what new properties come on the market. I’m interested to see if developers and rehabbers are still drawn to my area.
I also check to see how much properties have sold for recently so I can stay on top of market conditions. For example, I’m curious if sellers are accepting below-asking-price offers and how long properties are staying on the market.
I’m also looking to see if there have been any price reductions on properties that previously caught my eye.
All of this simple research helps me move quickly when an attractive property becomes available.
This research has also helped me develop a list of basic requirements I look for in a rental property.
Before running the numbers, a property has to match my initial requirements.
Before I run the numbers on any property, it has to satisfy some basic requirements. This is not an exhaustive list, but here are some of the most important factors my wife and I evaluate when considering rental properties in Chicago:
- Location, location, location. In Chicago, proximity to the L and social life (coffee shops, restaurants, bars, etc.) are crucial. Most of the young professionals we rent to are still in the “going out” phase of life. They want to live in fun neighborhoods so they can enjoy themselves when they’re not working. They typically stay in our apartments for 2-3 years, oftentimes before buying a place of their own and “settling down.”
- Taxes. Property taxes can eat away your cash flow. We have high property taxes in Chicago across the board, but taxes vary widely from neighborhood to neighborhood. I look for properties in areas that have more attractive taxes.
- Big bedrooms. One of the most common questions I get when I do apartment showings is, “Can I fit a king size bed in here?” People love big beds these days. This can be a challenge considering Chicago’s standard 25-foot wide lot. I look for properties with a minimum bedroom size of 10 x 10.
- Outdoor space. Young professionals want to have outdoor space, even if they never use it. When I was a renter, I always wanted an apartment with a balcony for my grill. It didn’t matter to me that I only used it a handful of times each year. Maybe having outdoor space made me feel more grown up?
- Parking. Even though Chicago is a very public transit-friendly city, people still like having cars. Because most young professionals aren’t using their cars every day, they want to keep it safe in a dedicated parking space.
If a property becomes available that meets these requirements, I’ll then run the numbers.
Only after confirming that a potential property meets these requirements do I actually run the numbers.
There’s no reason to waste time on a property that may project well in a spreadsheet but will cause me nothing but headaches as a landlord.
The other day, a new property popped up that caught my eye: 2501 N. Sacramento Ave.
It’s a five-unit apartment building listed for $1,800,000 and located directly in my target zone.
Here’s the listing description from Redfin:
Fully Gut Renovated 5-unit building, a prime turnkey investment opportunity in the best Logan Square Location Possible. Double Vanities, Fully built out walk in closets, in unit W/D, tankless hot water heaters, thin shaker kitchens and full height quartz backsplashes are just a few of the features that make this building feel more like condo living. Perfectly situated just steps from the Logan Square Farmers’ Market, residents can enjoy an eclectic mix of trendy bars, restaurants, cafes, and shops right at their doorstep. Renovation done with full plans and permits, include a new roof, windows, insulation, drain tile system with sump pump, back deck, and still warrantied appliances!
It’s not always the case, but in this instance, the pictures seemingly match the description of a beautifully renovated property. Of course, we can confirm the quality of the work when we tour the property.
So, this property passed my initial screening. Now, I can run the numbers to see if it would be a good investment.
By the way, I target gut-renovated properties because I have a full-time job as a lawyer and don’t have the time to dedicate to a major renovation project.
Let’s plug in the numbers to see if this would potentially be a good investment property.
Just because a property looks nice and is in a great location does not mean it’s a great investment. As investors, it’s our job to make sure the numbers work out so more money comes in than goes out.
Using the cost categories above, we can pull most of the information we need directly from the listing.
For example, Redfin (like most sites) provides a useful payment calculator where you can adjust the downpayment, interest rate, taxes, etc. for any property based on your personal situation.

Here are some tips before you get started:
- It’s a good idea to talk to your mortgage broker ahead of time to learn what mortgage rate you will likely qualify for and what downpayment you’ll need.
- Remember, this is an initial evaluation. Before you make your final decision on a property, you’ll need to confirm these numbers with your real estate team during the due diligence period.
- Try to be conservative with your projections. When you otherwise like a property, the temptation is real to modify the numbers so it looks better on paper.
- You’ll notice listing agents may try to enhance a property’s value by suggesting “potential rent” or “market rent” instead of the actual rent. Don’t fall into this trap and end up with a nice-looking property that makes no money.
OK, let’s look at the numbers on this property for educational purposes only. You are responsible for running your own numbers on any potential deal.
2501 N Sacramento Asking Price: $1,800,000
Monthly Rent: $13,840
Mortgage Payment (Principal and Interest) | $8,982 |
Taxes | $1,429 |
Insurance | $400 |
Utility Bills | $350 |
Property Upkeep | $200 |
Preventative Maintenance | $200 |
Vacancy Rate (5%) | $692 |
Unexpected Repairs (5%) | $692 |
Property Improvements (5%) | $692 |
Total Monthly Cost | $13,637 |
Monthly Cash Flow (Rent – Costs): $203
It took me less than five minutes to do this initial evaluation.
I can see that based on these numbers, the monthly cash flow is $203. We’ll talk about what that means in a moment.
A few notes on the above numbers:
- For the mortgage payment, I estimated a 25% downpayment, which is common for investment property loans, and a 7% interest rate.
- Taxes are a major cost that can make or break any deal. Make sure you are familiar with how taxes are assessed in your market. For example, in Chicago, property taxes are reassessed every three years. That means taxes go up every three years.
- Many property listings will indicate the prior year’s taxes because they are lower. This particular listing has the prior year’s taxes, which I know are soon going to change for the worse. For now, I’ll run the numbers with the current taxes but would definitely account for higher taxes before moving forward with this deal.
- Property insurance is a real wildcard these days. Insurance costs are going up everywhere. You’ll need to talk to a good insurance broker for an accurate estimate. I used my experience in the neighborhood with similar properties to make a reasonable estimate.
So, what have I learned from running the numbers on this property?
First, this is a beautiful property in a great location. If I made my decision based only on the pictures and the location, this would be a winner.
Unfortunately, the numbers tell a different story.
This property would not be a good investment for me. I invest for cash flow. For me, this property is way too expensive for only a couple hundred dollars of monthly cash flow.
At a price point of $1.8 million, I would only be interested if this property had a monthly cash flow of at least $4,000 per month.
Now, your preferences and goals may be different. Maybe you’re more focused on the other benefits of investing in real estate, like appreciation and debt pay-down. In that case, you may view this deal differently.
So, is that it?
Cross this property off the list and move on for good?
Not necessarily.
In our next post, we’ll explore ways to make this property a more attractive investment.
We’ll take a look at how the numbers change if we can successfully negotiate the purchase price, find a better loan option, and improve the monthly rent.
Real estate investors: let us know what you think of this property as a potential investment.
Would you be interested in moving forward at these numbers?
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