The Best Sleeping Pill for Real Estate Investors: Spreadsheets
Laying in bed. Staring up at your ceiling. A million thoughts per second racing through your mind. Although it’s late at night, your’e still wide awake. Sound familiar?
I know I have and it’s not pleasant (especially when you can tell the person sleeping next to you is sound asleep, but that’s a whole other discussion!). Venturing into the world of real estate can definitely produce sleepless nights where you just lay there and ‘wonder’ – ‘wait’ – ‘hope’ – that whatever you are current involved in works out for the best.
I won’t sit here and say I’ve found the Holy Grail to be able to sleep no matter what (sometimes you simply can’t sleep because of pure excitement), but there is something that will exponentially help out in regards to the “I can’t sleep cause I’m worried” type of situation: Spreadsheets.
Before we talk about spreadsheets and their importance, let’s first establish a few basic concept that you must learn AND learn to love.
Numbers Rarely…Rarely… Rarely Lie
Numbers are your best friend. You’ve read it a million times, you had your math teacher shove it down your throat, and now you’re hearing it from me. If you’re not a number’s person, I’m sure these annoys you to no end, but facts are facts, and whether you like it or not, numbers are your friend.
Sure, if you buy a house based on an after-repair-value (ARV) of $100,000 and then two weeks after closing there is news of a jail being built down the street, the ARV is going to drop like a rock, so you could say “Hey, the numbers lied, that’s why I hate them!”; however, I think we can all agree that is a pretty exaggerated circumstance. That’s the case with numbers, barring some Twilight Zone event, numbers will guide you in the right direction.
Numbers Need to Be Realistic
I’m going to keep this brief as I plan on doing a whole separate article about how to use the proper numbers, but bottom line here is, numbers are only as good as your homework/honesty level.
If you get lazy with your homework and get unrealistic numbers (over-inflated ARV for example), then the numbers will guide you down the wrong path. You can’t blame the numbers if you were the one who got lazy with them.
If you lie and convince yourself of unrealistic numbers (under-inflated renovation budget for example), then again, don’t expect the numbers to guide you down a profitable path. Pointing the finger at it being the numbers fault will just be ANOTHER lie you are convincing yourself of.
Numbers Need to Be Accounted For
This falls into the not getting lazy category, but make sure you have all your numbers that you need! You can be fully convinced that “numbers don’t lie” and know in your heart of heart you are being honest about the numbers, but if you don’t have all the numbers, it does…not… matter.
If you want to know your holding cost, but forget to factor in property taxes, guess what? Your profit projections are going to come up shorter than what you thought.
"Whoops, I forgot that even though I'm a Realtor listing my own investment flip I needed to factor in the 3% I'll need to pay the buyer's agent". Honest mistake, but that doesn't take away the fact that you didn't have all your numbers accounted for, and therefore will have alternate (perhaps ânow' unfavorable) profit projections.
Numbers Can Be Intimidating & Time Consuming
Maybe you are someone who is meticulous. You believe in the power of numbers. You have been realistic with your numbers. You have all your numbers accounted for.
As great as this is, if you are intimidating by numbers, now you have a new issue that will be keeping you up at night: “what do I do with all these numbers?!?!?!”
Perhaps you know what to do with them, but now you’re laying awake in bed dreading the fact that tomorrow you need to sit down with your pad and paper and go through all the calculations by hand.
*Cue the Superman music*
Nerds like me love spreadsheets. Not because they are “fun” (ok, ok, I admit, I personally enjoy them on a ‘fun’ level), but because they accomplish two CRUCIAL milestones:
- They make sense of all the numbers you’ve gathered.
- They save you a boatload of time.
For these two reasons, I don’t see/understand why you wouldn’t utilize spreadsheets. There aren’t any good reasons why would couldn’t/wouldn’t.
Spreadsheets are like a stove. You put all the ingredients together put them in, and then you are given a nice final result. Not only did you get a nice result, you also didn’t have to waste your day building/maintaining a fire in order to cook it.
Invalid Reasons & Solutions
“I don’t know how to use spreadsheets.” – NOT valid.
As a former engineer, spreadsheets are second nature to me; however, that doesn’t by any means make me some super smart guy. Maybe some will lead you to believe spreadsheets are rocket science, but they’re not. They DO take time and effort to learn, but by no means do they require an absorbent amount of knowledge. Trust me, if I can figure them out… you can too!
Books, blogs, videos… the list is endless. There are all sorts of areas on the internet or in your local bookstore that can teach you.
“I don’t have the time to learn. It’s not efficient for me.” – NOT valid.
That’s fine. In fact, that’s great you are looking at your time as your most valuable commodity, but that doesn’t give you an excuse to skip out on spreadsheets. You can hire someone to build you one, or you can simply find one for your particular purpose.
“I have no idea where to look for one.” – NOT valid.
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You are reading this, so it is no longer a valid reason. A simple Google search will reveal more spreadsheets than you can fathom. For a potentially more efficient way, BiggerPockets has a section on the site called the FilePlace, where you can download spreadsheets from users of the community. I’d say start there!
When all your numbers “make sense” and “give you” the information you need to know in order to see if it is a good deal or not, then you won’t be laying in bed “wondering” these things. You won’t need to dread getting out the pencil and paper the next day. You’ll be able to sleep easy knowing you can simply type in the numbers and let the spreadsheet do the work.
Spreadsheets may not be the most exciting thing in the world, but they truly do a great job of alleviating sleepless nights.