I am a new investor, and following @Brandon Turner's plan of analyzing 3 deals per day. However, I don't believe that I have the correct template or calculators. I am trying to analyze Single Family Homes (SFH) in the Aurora / Naperville, IL area, for potential buy-and-hold rental properties.
Does anyone out there have a calculator or template that they prefer using? Something in a downloadable spreadsheet would be great as well.
Any additional tips or strategies for evaluating potential properties, is always welcomed as well.
You can use the rental property calculator here at BP free for 5 times and then you need to upgrade to a pro member to continue using. Try this link for a rental calculator.
Here is a youtube video that really helped me when I first started trying to calculate cash flow for rental properties. It is a lady using a dry erase board. In my opinion this is better than a spreadsheet. You can always create your own excel sheet once you understand all that goes into the calculations ( rental income- expenses taxes, repairs, property management, vacancy, mortgage= cash flow)
Hello there Jelani,
I am new to all of this as well and I just so happen to live in Darien Il. Aurora is one of the target areas that I am studying with my analysis of properties. Here is a link to an excel spread sheet that was posted to the forums. I just downloaded it tonight in fact.
Being a newbie with all of this and not having any current access to detailed numbers (or at least not knowing where to look for them yet) here is what I have been doing when it comes to "analyzing properties".
I have used Zillow, Redfin, and Trulia for each area that I am looking in. I have also "driven for dollars" in these areas. When I started with this, I just looked at prices of houses in that area and used an online mortgage calculator to see what payments would be like.
Being conscience of vacancies, I began to see what would be affordable for me out pocket and this narrowed my search. Obviously, if I cant afford the mortgage out of pocket, then the numbers do not work for me and its a "No Go".
Taking an average rent of similar properties for the area (3/2 SFR), I used this average to determine income of the property.
I take the same listing and run two basic, and I mean real basic, "analysis" of the property.
First is just the list asking price. Using parts of the 10/10/10 rule pg. 46 from John W. Schaub's book "Building Wealth One House at a Time", I calculate using only a 10% down payment and a interest rate of 10% or less (I have been using 6%). Once I know what the mortgage would be I use the 50% rule to determine whether or not cash flow would be positive or negative.
I then re-run the property in the same manor using 70% of the listed asking price (taken from another book, I think it was "How To Make Money In Your Local Real Estate Market" by Brian T. Evans but don't quote me on that). The other variables stay the same, aside from the actual amount of the down payment. The percentage stays at 10% for the down payment.
The cash flow always improves but could still be negative. If that is the case or it doesnt earn a positive $100 per unit, its a "No Go".
This has helped me train my mindset and my eye for properties just by running them through this method.
This is hardly a proper way of analyzing, however I started doing this even before I saw the 22 1/2 actionable tips podcast, which was awesome by the way. This was exciting for the reason that my head is really getting into the game and that podcast confirmed it for me.
That being said on podcast 116 with Nasar Elarabi, Nasar had a tip of always paying attention to the comps. Once I did that I realized that I had more possibilities than I thought due to the asking price being above the comps for the area. Be sure to watch that podcast. I have listened to it several times already.
Anyway, getting back to Aurora, with the numbers that I have been working through, I am leaning towards dropping it from my list.
Hopefully this makes sense and is of some use to you.
Thanks for all the advice. I will have to read up on the 10/10/10 rule. Looks like a simple and quick way to do preliminary analysis.
One question: what is the "50% rule" ? I am not familiar with that one.
50% rule is something i found on BP. Basically means half of your income goes towards your capital expenses and the other half is left to pay your mortgage. Any remainder ia your cash flow.
50% is $900 for cap ex
50% is the other $900 for mortgage
Lets say mortgage is $700 you will be left with $200 is positive cash flow.
This rule is used to help identify if a property is worth looking into further. Its not to be used in place of a proper analysis.
Potentially unpopular answer here: use other spreadsheets as a template but build your own in Google Sheets. It's free, you can access it on your smartphone, and (most importantly) understanding how the formulas work is more valuable than the "answer" in the spreadsheet. Being able to mess around with the variables and seeing how the impact ripples through let's you stress-test your deals yourself.
@Andrew Johnson , that's some good advice. I have built my own spreadsheet in Google sheets implementing several rules of thumb as well as slicing the ROI via cap rates, GRM, etc. The intent is that if it passes a conservative review, then it's worth further investigation.
Originally posted by @Michael Smoczynski :
Eric Olsen Jelani Tate
Are you still investing in Aurora?
I live in Aurora and am new would love to get some advice!
Never started investing in Aurora. From what I understand there is a good amount of "competition" there and it is further away than what I wanted to deal with.
I currently own 2 properties in Aurora, 1 of them is a multiunit the other is a single family home. I plan on aquiring more in the future, if any one is interested we can start a partnership.