How to calculate Equity accrual

Question

Hello i read an article by J. Scott where he refers to a spreadsheet.    The article is great and the Spreadsheet really good.   I was able to  follow the Example on my own Except the Equity accrued.   His Example  and the spreadsheet has a value of 3,251 and I come up with 3,489.84.   I  would like to understand what I'm missing?   The article is in  http://www.biggerpockets.com/renewsblog/2010/6/30/introduction-to-real-estate-analysis-investing/

J Scott · Answer

I use the Excel function "cumprinc" to calculate equity accrual on that spreadsheet. Something to keep in mind is that the function will allow you to define how the interest is calculated/applied -- for example, on a daily basis, at the end of each month, etc. -- and depending on how the interest is calculated/applied, the breakdown between principal/interest will change slightly. This, in turn, will impact the pace of equity accrual.

Does that make sense? You should be able to look at the spreadsheet and see what parameters I use. I'm guessing you're method is just assuming the interest is calculated/applied differently than that.

Does that make sense?  You should be able to look at the spreadsheet and see what parameters I use.  I'm guessing you're method is just assuming the interest is calculated/applied differently than that.

Bill Gulley · Answer

You're only off by 238.84!

No idea what the guesstimation is, equity accrual, are you figuring the debt service interest on a 360 day basis?

Equity can only be shown in the first year by the reduction of debt based on the cost, after one year, to be accurate in accounting methods you'd need an appraisal to claim an equity amount. For your internal analysis you'd simply look at the reduction of debts based on your costs as any appreciation is just a guess until you sell it.:)

Justin Johnson · Answer

@J Scott, I Loved the blog post that you made about analyzing property, I was able to recreate almost everything perfectly except for the Equity Accrued value.  Thanks for posting the link to the spreadsheet I was able to use the cumprinc function to complete it.  This is a super handy analysis tool that I will be using from now on.

One other question that I have is the difference between the two spreadsheets.  In the blog post you had a "Key Values" field to the right of the Cost, Financial, and Revenue Assumption sections.  How did you calculate GRM, Cost/Unit, and DSCR in the spreadsheet?

Thank you.

Jesse Zhu · Answer

@Raul BuitragoI think it's the rounding. If you round enough digits, you'll get closer to Scott's number.

Raul Buitrago · Answer

Thank you So Much.  cumprinc worked!   The link to the Spreadsheet didn't work but it is ok,  I was able to follow the example !  Thank you again!

J Scott · Answer

I believe this is it:

https://www.biggerpockets.com/files/user/JasonScott/file/20-sfh-rental-analysis

Raul Buitrago · Answer

I don't have your Spreadsheet as I couldn't find it to download it.   From the article all I got was a PDF.   I'm just a beginner and it would take me a while to digest your response but it would be greate if you can tell me how to download your Spreadsheet.   Thannk you so much.

How to calculate Equity accrual

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