First thing is understanding the terminology of residential income properties. It’s surprising how many don’t.

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Transcript:   So you take your GSI and your vacancy rate from that, and you end up with your GOI. After you look at your GOI and operating expenses, you end up with your NOI, then you end up after that being able to calculate your cash-on-cash return. You got all that right? Well, let’s take it one step at a time. What is GSI when you’re talking about income property? Gross scheduled income. Well what’s that? That’s just the rent. On gigantic apartments, it’s not just tenant renting income, it could be where you get income from parking, from a garage and a car port differently. You have laundry, see what I’m saying? You might have rec rooms where you’re making rent for their wedding reception, things like that. We’re just talking 1-4 units, so gross scheduled income is what’s the rent scheduled for the year, if everything went according to what the lord did to bless you. So gross scheduled income, let’s say in a particular case, is $33,000. Well now you have a vacancy factor. What are vacancy factors? It’s not just did the tenant move out, it’s what’s the percentage of income that you lose while they’re out? What people never add to the vacancy factor, is that the real phrase for professionals is vacancy and credit losses, because sometimes people don’t pay. For instance, in San Diego for years, the only vacancy rate was a courtesy rate, because it was really how long it took your cleaning crew to get it ready for the next person who was impatiently parked next to the idling moving van, waiting for you to finish. Then you have horrible times when a vacancy rate is double-digits, 10-15-20%. Hello Detroit, sorry guys. So let’s take a place in Texas like Austin. Depending where you go and who you’re talking to, you’re just north or south of 4%. So for every $100 of gross scheduled income GSI, right off the top you’re going to lose 4 bucks, vacancy factor. You have some credit loss in there, maybe because somebody didn’t pay, I don’t care what it is. If it’s under 5% I never use less than a 5% vacancy factor. So if we have rent – let’s use 35 instead of 33, I’d do it in my head better – you have 5%, that’s $1750 dollars a year, right off the top. It’s just going to be like steam in the air, gone. So what we call that is gross operating income, GOI. Most people never heard of that one, because most don’t use it. I hardly ever use it, but it’s something to know because you want to know ultimately how to get to your NOI which is net operating income, and it starts with GSI, and goes to GOI. So you got gross scheduled income minus your vacancy and credit loss, which equals your gross operating income, and from that you take away your operating expenses. Let’s start – you’ve got 35,000 a year, that’s your gross budget. First thing off the top you got vacancy and credit loss. Now you’re only working with 95 cent dollars. Now from that, you’ve got real estate taxes, real estate insurance, if you don’t live where it is – or even if you do – it doesn’t say manager on your forehead, you’re hiring a property manager that is a professional. That’s normally going to cost you 8-9-10%. In a market like in Texas where the demand is high for quality management professionally, it’s probably going to be closer to 10 than 8. My clients in Texas – because we command a lot of doors and have that authority – our guys only pay 5-7%. But if you’re buying in your local market you want to budget 8-10%, and by the way,