My numbers don't match BP numbers

12 Replies

Hi BP family:

Getting ready to bid on my first rental property and plugged in #s from my spreasheet into BP and the NOI and Cash on Cash ROI is way off. My cash on cash return is twice what BP shows and at 80k I dont even meet the 2% rule. I feel like I dont know if I should put in an offer or not. Please help me. Here is the info:

City: Hamilton, New Jersey

House: 3 bedroom 1 bathroom

Size: 1036 sq feet

Price 80K

I plan to put down 25%  (I have the money in my brokerage account but will borrow from my 401K instead (3.75%)

Rents in the area are $1350-1400 per month

Property tax $3,542

Please help. I truly appreciate it.

Sheldene

Confused

@Sheldene M.

The following website sheds light on the 401k loan rules. 

http://www.irs.gov/Retirement-Plans/Retirement-Pla...

Hi Mark:

Thanks for responding so quickly. I'm good with borrowing from my 401K. I already spoke to my benefits department at work and my  accountant and I'm good in that space. My problem is trying to decide if I shoiuld get the property based on the numbers.

If you and the calculator are that far off, take a look at my blog post about understanding the numbers: http://www.biggerpockets.com/blogs/6815/blog_posts...

Bird's eye rule of thumb math on this property is about 20% cash on cash.  Is that what you got?  That would be a good investment, but you need a lot more details to decide how closely this specific property lines up with those assumptions.

Hi there:

cash on cash= cash flow/investment basis. I show 13.77% and the BP clculator shows cash on cash ROI 7.73%.

Page 1 of 3

What am I doing wrong? I truly apprecaite your help.

Originally posted by @Sheltocks M. :

Hi BP family:

Getting ready to bid on my first rental property and plugged in #s from my spreasheet into BP and the NOI and Cash on Cash ROI is way off. My cash on cash return is twice what BP shows and at 80k I dont even meet the 2% rule. I feel like I dont know if I should put in an offer or not. Please help me. Here is the info:

City: Hamilton, New Jersey

House: 3 bedroom 1 bathroom

Size: 1036 sq feet

Price 80K

I plan to put down 25%  (I have the money in my brokerage account but will borrow from my 401K instead (3.75%)

Rents in the area are $1350-1400 per month

Property tax $3,542

Please help. I truly appreciate it.

Sheldene

Confused

 I'm confused.  If you're getting your "cash" from your 401k as a loan, what cash are you putting in?

Still crunching numbers as well. Trying to figure out a great 1st investment (and very first house ever). Don't want to screw it up. I'm going to check out @kevin seidlecki for the blog and see what's up.  Think you might be missing some calculations though like capex and vacancy. Do you already have money set aside for these? Are all the other rentals 3/1 or are they 3/2? Makes a difference as well for rent prices. Not trying to sharpshooter just asking. Thanks for the post @sheldene m.

Hi there:

I want to keep the money in my bank account for emergencies so i will borrow money from my 401k and use that as the down payment.  will check the numbers to see if i missed including capex. it's one property that's a 3/1. Appreciate your responses.

Originally posted by @Sheltocks M. :

Hi there:

I want to keep the money in my bank account for emergencies so i will borrow money from my 401k and use that as the down payment.  will check the numbers to see if i missed including capex. it's one property that's a 3/1. Appreciate your responses.

 If you're not using any cash, then your cash on cash return is infinite.

CCR is a very simple formula that has been "mangled" by investors looking for ways to rationalize bad deals by introducing elements into the formula that have nothing to do with cash.

The formula is simple:  Cash (only) out/cash (only) in....in the 1st year ONLY

If I use an example of one of my deals I just did:

Cash in:
Buy/Rehab/Fees = $55k
TOTAL                = $55k

Cash Out:
Refi in 6 months     = $60k
Cash Flow 1st year = $ 4k
TOTAL                    =$64k

CCR = $64k/$55k = 116%

Joe;

Many, many thanks.  You have been most helpful.

@Sheltocks M.

get the book by Frank Gallinelli on math calculations for RE. His book lays it out in an easy to understand format. Though some of them are a bit more complex than a simple ROI or net cash flow, it is good to be able to run the numbers if and when you move to larger more sophisticated investment vehicles. To run these numbers, you will need more information that just purchase price, taxes, and potential rental income. Here is a quick NOI calculation that is also published in his book:

PGI   (potential gross income assuming all units are rented)
+OI   (other income--Laundromats, etc)
+EGI  (effective gross income or gross operating income)
-VCL  (vacancy estimates and collections losses such as unpaid rent)
-OE  (operating expenses such as electric, taxes, insurances etc)
=NOI   (net operating income

OE does not include debt service and he explains why in his book. You need to dig deeper and come up with your annual cash flow after you have your NOI and other figures. Then take your annual cash flow and divide it by the cash invested to get your COC return. Annual cash flow/cash invested is the textbook definition of cash on cash returns. Unless you have all your expenses accounted for you won't be able to get a correct COC. Keep in mind that NOI does not include debt service but would be included in your COC calculations if you borrowed money. To help you, I ran and got the book out of the bookshelf before I finished this post to give you the correct name of the book: "What every real estate investor needs to know about cash flow".
This books is worth every dime and should be part of every investors library.

If your all in number is 80k and rents are 1350 - that's a good deal as long as the comps for resale are at least 80k (just in case you have to sell - and you might want to allow for closing costs say 10% so maybe comps should be 90k). And of course assuming decent tenants and decent area. 

excellent information. Very much appreciated.

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