I have the worksheet I use of a ‘quick and dirty’ hard money purchase analysis and I thought I’d share it with you…download here! First if you don’t know much about worksheets, don’t worry; you simply input a few numbers at the top, and the worksheet automatically calculates the fields without your assistance. You just get to read the output.
Why I Use Hard Money: My Theory
Let me explain why I call this my “Hard Money Buying” worksheet. First, I hate putting my own money in purchases, since I’m already putting in my valuable time I feel adding my money to boot is too much to ask. With hard money or what some call private investor funds (rich guys that have more money than time) I seek to borrow not only the acquisition funds but the rehab funds and all the carrying costs including interest payments for 6 months. This is more than enough time to bring the property back to market either as a rental or a sale opportunity.
The Hard Money Worksheet
There’s a screen shot below…and then I’ll give a tour of what’s on it.
First, the gray fields are the only fields that you use to input data. Everything else is auto populated off of those data fields. The “yellow highlights” are there so your private lender gets an eye-full of the good news! As I get “more serious” about a property, I’d do more “complex” calculations, but this worksheet is the basis for my private lender to make his decision from…after all if they won’t lend, I’m not buying.
For example of how I use this worksheet, the screen shot shows my Acquisition Cost at 61.54% and 65.24% after 6 months…if my lenders cutoff is 65%…I’m asking for an exception to the rule. They may say “OK” or they may not. I may have to fax “this deal” to a number of private or hard money lenders to see which one accepts my exception.
Private funds in my experience want about a 12% nominal rate and worse case, 5 points…so the worksheet reflects this. The worksheet reflects the 6 months of turnaround time and tracks the carrying costs over that time. Private funds usually won’t lend if they are letting you in with “none of your own money” at a LTV of greater than 65%. The worksheet gives me two looks at LTV…one before 6 months of holding costs…and one after. This gives me the options with my private money loan request.
Next you’ll see the output for when I sell, the worksheet spits out gross profits for sales prices of 80% of appraised value growing in 5% steps up to 100%. So I can see what my profit potential is if I “hold out” for a higher sales price…or cut the home for a quick sale.
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Now depending on the deal, I want to see a monthly cash flow projection as well. So there are inputs for annual property tax and hazard insurance estimates, as well as a 10% estimate for “management expenses”. Feel free to add any addition expenses the cost of a property manager, advertising, vacancy, and collection losses, etc. over the 10% I impugned in the “Est. Insurance” field until you feel you’ve adequately represented the “outflow” and then estimate your potential rent keying that in in the appropriate field as well.
For debt service, it is assumed a 90% loan at 8% amortized over 30 years on the 100% Sales Price figure. If these terms are too generous for you, feel free to calculate the final cash flow by hand using your own figure for monthly debt service…if they feel right…you’re in luck because the worksheet cranks out a lovely “Est. Cash Flow for you!
There are some fields that are nice to show private investors like “cost per square foot” and “rent per square foot”…but they are more for “them” than for you.
NOTE: This worksheet is equally useful for a “fix and flip” scenario using 100% hard money…or a monthly cash flow analysis to help you make long term hold decisions.
Have fun…and happy investing!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.