Understanding ROI and Expenses

Rental property is both an asset and a business. This article breaks down how to think about return on investment (ROI) and the common expenses you’ll see as an owner.

Clear expectations about income and costs help you make better decisions, evaluate performance, and avoid surprises. A property can be doing well—and still have months where expenses are higher than usual.

1. Gross Rental Income: The total rent you’d collect if every tenant paid in full and on time. This is the starting point — not the final “profit” number.

2. Operating Expenses: Ongoing costs required to run the property, such as:

   1. Property management fees,

   2. Maintenance and repairs,

   3. Utilities you pay as the owner,

   4. Property taxes and insurance,

   5. HOA dues (if applicable).

3. Capital Expenditures (CapEx): Larger, less frequent items that extend the life or value of the property:

   1. Roof replacement,

   2. Major HVAC replacement,

   3. Significant upgrades or remodels.

   These don’t happen every year, but they must be planned for over the long term.

4. Financing Costs: Mortgage principal and interest payments. These are part of your overall investment picture, even though they don’t show up as expenses on our Owner Statements.

1. Cash Flow (Month-to-Month)

   1. Cash Flow = Rent In – Operating Expenses – Financing Costs

   2. This shows how much cash the property is putting in (or taking out of) your pocket each month.

2. Cash-on-Cash Return

   1. Cash-on-Cash = Annual Cash Flow ÷ Cash Invested

   2. Cash invested usually includes down payment, closing costs, and major initial repairs.

3. Total Return Over Time

   Beyond cash flow, your long-term return includes:

   1. Principal paydown on the loan,

   2. Appreciation or value growth, and

   3. Tax benefits (consult your tax professional).

• Tenant selection impacts delinquency, wear-and-tear, and turnover costs.

• Maintenance decisions affect long-term asset health and tenant satisfaction.

• Rent pricing and renewals influence vacancy and income stability.

• Income: Rent collected and any other tenant charges.

• Expenses: Management fees, repair invoices, and other property-related costs we pay on your behalf.

• Owner Distribution: The amount transferred to you after those items.

1. Track cash flow over several months, not just one.

2. Set realistic expectations for maintenance and CapEx — some years will be heavier than others.

3. Periodically review whether rent, expenses, or strategy should be adjusted.

• Owner Payments & Statements – How to read your monthly reports.

• Owner Fees Explained– How our fees fit into your expense picture.

• Creating a Financial Foundation – Tenant-facing but useful for thinking about money habits.

• Furlo Property Management Responsibilities – What we’re doing to protect your investment.