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Step one: set realistic monthly income
Start with rent a comparable home actually achieves, not the highest advertised figure. Check several similar listings nearby and use the middle of the range. Then subtract a vacancy allowance, since homes sit empty between tenants. Example: a house that could rent for 1,800 a month, with a five percent vacancy allowance, gives expected income of 1,710. Write the assumption beside the number so you can revisit it later. If the rent estimate is wrong, every later calculation inherits the error, so spend the most care here and note where each figure came from.
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Step two: list every recurring cost
Add the costs that continue whether or not the home is occupied: mortgage payment, property taxes, insurance, and any association fees. Then add costs people often forget: maintenance, repairs, management fees if you use an agent, and utilities you cover. Continuing the example, suppose mortgage is 1,050, taxes and insurance together 350, maintenance set aside 150, and management 140, totaling 1,690. Use quotes or documents where possible instead of guesses. A simple rule of thumb for repairs can be a starting point, but replace it with real inspection findings once you have them.
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Step three: compare, stress test and decide
Subtract costs from income: 1,710 minus 1,690 leaves 20 a month, which is thin. Now stress test by raising maintenance, lowering rent slightly and increasing the interest rate to see whether the result turns negative. Decide in advance what monthly surplus you need and what reserves you can hold. If the home only works under optimistic assumptions, treat it as a warning rather than a bargain. Record the final figures and assumptions, compare them against other candidates, and consider professional tax or financial advice before committing to any purchase.