Real Estate Questions, Answered

Practical answers to common real estate money questions - rising mortgage payments, negative rental cash flow, cap rates, seller concessions and reserves.

• Why did my mortgage payment increase?

  On a fixed-rate mortgage, the usual reason is escrow: your property tax or homeowners insurance went up, so the servicer raised the monthly escrow deposit and may be collecting a shortage from last year. Other causes are an adjustable rate resetting, a temporary buydown or interest-only period ending, or fees. Your annual escrow statement or payment-change notice shows which.

• Why is my rental cash flow negative?

  Negative cash flow means the rent you collect does not cover operating expenses, debt service and reserves. Split the problem in two: if net operating income is positive but smaller than the mortgage, financing is the issue; if NOI itself is weak, rent, vacancy or expenses are. Each has different fixes, from raising rent at renewal to appealing a tax assessment or restructuring the loan.

• Is a higher cap rate always better?

  No. A higher cap rate means more net operating income for each dollar of price, but markets price risk into cap rates. Properties with less reliable tenants, higher turnover, deferred maintenance or weaker locations usually trade at higher cap rates. Compare cap rates only between similar properties, and check whether the income behind the number is real and sustainable.

• Can seller concessions cover closing costs?

  Yes. A seller can agree to pay some or all of your closing costs and prepaid items as a concession, up to two limits: your loan program's cap on interested-party contributions and your actual costs. Concessions generally cannot pay your down payment or be taken as cash, and any amount above the limits is lost or must come off the price.

• How much should I budget for vacancy and maintenance?

  Budget three separate amounts: a vacancy allowance from how many weeks a year the unit is likely to sit empty, a maintenance allowance for routine repairs, and a capital reserve for replacing big components such as the roof and furnace. Building each from the property's own condition and local turnover is more reliable than a single percentage, which can understate costs on older homes.

Answered on other glossary pages

• What happens when an appraisal is lower than the offer?
• How much cash do I need to close?
• Are builder incentives better than lowering the sales price?
• What is the difference between ROI and cash-on-cash return?

Explore more of the glossary

Definitions are provided for general educational purposes and are not financial, legal, tax, or real estate advice. Rules vary by transaction and location - verify important decisions with qualified professionals.