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Posted almost 10 years ago

A Spreadsheet Jump Started My Investing

Life changing events: getting married, having kids, putting together a spreadsheet. Maybe the last one does not fall into the category of life changing events but it absolutely helped me get on track to building an income producing real estate portfolio and I will explain why.

I started "trying" to invest in real estate in 2007. My brother and I were going to try to fix and flip houses in the Denver area. I lived in Chicago so the plan was for him to oversee everything and I would provide the capital. We were looking at all types of properties, in different areas, and I was analyzing them one at a time. Around this same time, a friend in Cincinnati came to us with two multi-family properties he had under contract but needed money to close. After some discussion and analysis, we decided to become partners with him on the two properties and made our first real estate investment in 2007.

Between new jobs, getting married, having kids, not to mention the financial crisis, our first real estate investment remained our only real estate investment until 2013. After looking at the steady income our original investment had produced and depressed state of real estate prices, we decided to again "try" to make additional real estate investments beginning in 2012. Only now I was looking at Denver, Chicago and Cincinnati.

I finally realized that looking at all property types, in three large metro areas, was not the recipe for getting something done but rather a great way to waste a lot of time. Given we already had an investment in Cincinnati, knew how it had performed and Cincinnati had the lowest prices of the three cities, we decided to make that our focus. I still had the problem of what property type to focus on, what areas to look at, what could I expect make on my investment? This is where the spreadsheet comes in.

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I needed some way to figure out what I should be focusing on and what my expectations should be for any investment. I went through the MLS and entered the: Address, # of Units, Asking Price, Gross Rent and Expenses for 75 to 100 properties. I set up the spread sheet to calculate a number of other numbers based on various inputs. I could then sort this list on whatever factor was important to me. I always focus on Return on Cash. We purchased three multi-families in 2013 and have another one currently under contract and this spreadsheet has been an integral part of the decision to purchase all of them. Here is how it helped me:

Focus - I was able to quickly see that, in general, the projected returns for a buy and hold investment were much better for 4 units and higher, so I could spend the majority of my time analyzing those properties. It also revealed that the "good" areas which I was most familiar with generally did not produce a great projected return. Again, I was able to narrow the number of areas I was devoting time to looking at.

Market Knowledge - Looking at and entering data for 100 or so MLS listings forced me to get to know the market. It really gave me an idea of what types of buildings were in different areas and how desirable those areas might be for renters.

Realistic Expectations - When you see 100 or so potential investment properties lined up, it really helps frame what you should expect to earn on your investment.

Beware the Denominator Effect - The properties that by and large populated the top of my spreadsheet, based on Return on Cash Flow, were not properties I would want to invest in. Again, in general, they looked really good because they were very cheap. They were really cheap because they were in bad condition or located in a bad area or most often both.

System for Analysis - The spreadsheet allows me to look at any property types, in any area, and come up with a quick comparison versus what else is available in the market. After looking at the numbers, we were able to arrive at a rule of thumb that we needed a property Gross Rent Multiple of 5x (price equal to or less than 5 times the annual gross rent).

A spreadsheet can't tell you everything but for me it was a key to getting us focused and formalizing a process for evaluating investments. I continue to add properties to list and have around 150 in there at present. I also periodically go back and update the numbers to reflect what properties sold for so we have a good idea about what other investors are achieving.


Comments (9)

  1. Alt Offer Price: sometimes they are the same as Asking, other times quite different?


    1. I should probably do a new post that explains how I use the spreadsheet and what all the different columns mean.  Alt Offer is where I plug in different prices.  If there is a property in an area we are targeting I will put in our target price in the Alt Offer column.  All of the return and cashflow metrics are calculated off of that column.  I don't analyze every property.  If you see the same Asking Price and Alt Offer, I have not spent any time on that property.  I also periodically go back and update the Alt Offer column for properties that have sold.  


    2. I posted a new blog entry that graphically explains the spreadsheet:

      A Spreadsheet Jump Started My Investing (Spreadsheet Explained)

      Hopefully that is helpful.


  2. I filled in more accurate expense amounts when they were provided. I include taxes, insurance, utilities in that category. When I first started the spreadsheet I just entered everything on the MLS that was 2 units or more in any neighborhood that we would possibly consider. I was more focused on getting a lot data that could be helpful vs getting too detailed on properties we would never pursue.   


  3. Ryan,

    How do you come up with Operating Expenses of $11,001 on the first property?  At 30% of Gross Rent, I'm coming up with $8,280.


  4. Sounds awesome. I an a recovering excel-a-holic, any chance you would be willing to share your spreadsheet, I would love to see what you have done and would be willing to review and provide feedback. Bob Estler


    1. The screen shot is my actual spreadsheet. There is nothing in there that is rocket science, pretty standard real estate ratios. I think the the biggest benefit for me was getting a system in place to evaluate properties instead of just plugging individual properties into a calculator. Very easy to rank properties under different financing and price scenarios. I just plug in the numbers in the highlighted yellow and everything updates.


      1. Hey Ryan, 

        I'm new to investing and am looking at Ohio. I feel pretty computer illiterate but where do I find the "screen shot" of the actual spreadsheet? I think using a spreadsheet is a genius way of analyzing properties! Thanks for posting! 

        The screen shot is my actual spreadsheet. There is nothing in there that is rocket science, pretty standard real estate ratios. I think the the biggest benefit for me was getting a system in place to evaluate properties instead of just plugging individual properties into a calculator. Very easy to rank properties under different financing and price scenarios. I just plug in the numbers in the highlighted yellow and everything updates.


      2. You are right, the screenshot is no longer there.  I pasted it below.  I still use this as my initial screen for any property and it is up to 225 properties.