I have only theoretical experience in real estate, but a lot in software development. I want to automate a process of finding good deals.
As a first step, I want to make sure I got my math right. Basically what I do, is I look at its purchase price, rent, and expenses such as taxes, maintenance, etc. As a result, I want to know the monthly cash flow, deal, and investment sum.
I would like someone with experience in purchasing / owning cash flowing properties to look at my analysis and give me suggestions, where I did mistakes.
As a bonus, maybe you will find a good deal using my tool, or I can set up something that fits your search better.
Here is the link to the analysis files: https://drive.google.com/drive/folders/17BAS0r-Run...
Basically, it is a google drive folder, with many spreadsheets describing properties in the region I want to invest in. Minneapolis-St Paul area.
The title has:
- cash flow value: how much property will earn per month.
- deal: indicates if the property is cheaper or more expensive then other properties in this area.
- how much money I will need to invest.
If you open any of the files, inside you can see more details about what I use to calculate cash flow. Also, there is an address and a zillow link to the property. And this is where I could use some help. Are my calculation of cash flow match your estimates?
This is really interesting. I'm actually in a similar situation as you, software developer, considering long term rentals.
I'm curious about how you obtained the data. Did you manually enter it or use an API?
Hi, Roman. Thanks for posting. We need more data, more data sharing, and more automation like this. So first, kudos.
Now, a math check might involve validating (1) your assumed values, (2) that you're focusing on the evaluation metrics that matter to you, and (3) the calculation method for going from assumption inputs to your evaluations outputs.
- What is Home Price? It looks like Market Value is the list price on Zillow. But for example, on 1108 45th Ave, you have $143,018 for a house price when it's listed for $200,000. If you can buy a house for 143 and sell it for 200 without doing any work, then you've got yourself a deal already.
- Many lenders want a 25% down payment if you aren't living in the house. Maybe you have an exceptional one.
- $100/month might not be enough for maintenance, especially for older houses. I plan for $200/unit in multifamily, and I'd probably budget more for these single-family homes.
- Maybe double-check your property tax amount. If possible, pull directly from the county records.
- Looks like you're planning $0 for utilities and snow/lawn. Cool for single-family.
2. Evaluation metrics
- Cashflow: awesome.
- Looks like C19 is cash-on-cash return. Cool.
- How are you thinking about Deal? C20 looks like a calculation as if you were going to wholesale it or flip it with no rehab. That brings me to the big question.
- How do you want to invest? That will determine what evaluation metrics matter to you and what makes "a good deal." If you want to buy-and-hold-and-never-sell while maximizing the % return on your money, then you should prioritize the CoC return. If you're busy outside of real estate, maybe deal capacity is a constrained resource; then the cashflow per deal might matter more than the CoC return (e.g., if you can only buy 1 deal/year, then a $400 cashflow/9% return deal might be better than a $100 cashflow/15% return deal). If you plan on renting a place for 5 years and then selling, I'd add neighborhood-specific appreciation assumptions and assess deals on internal rate of return (IRR). If you're planning to wholesale, then you have a tougher job of estimating the measures that matter to your end buyers (likely likely ARV and repair costs in addition to the ones above). Accurate repair costs are probably tough to automate, but if you build an app that does it, you'll be able to retire on any beach without buying a single house.
3. Calculation Methods
Look good to me.
I'm not part of the target audience you wanted to look at your files. I wanted to know how you learned how to do spreadsheets like this? I would be grateful to know resources that could help me get to even a quarter of your skill level. Also if you would like a faster, more dialed back calculator I made a spreadsheet that mirrors there 4 square video.
Few things (in addition to what @Dominic had rto say):
- From my experience you can do 20% down although 25% may be a bit ore beneficial.
- I did not see any allocation for vacancy.
- I did not see a leasing fee expanse.
- In today's environment (April 2019) 4.5% for a rental property is none-existed and you should assume 5%-5.25% (4.5% if more a rate a homeowner will get not an investor).
As for ROI:
After many year of investing in rentals and analyzing rental properties I use the following to calculate a more accurate ROI:
- Cash on cash
- Return on equity
- Not know appreciation but minimal inflation
BTW, the analysis I use (see photo) measures the performance over 30 years and produced averages for the first 5/10/15/20 years of the property as measuring the fist year is not really a good indicator.
Thanks for your information! It is very valuable. I am happy to share information and hope I can make it more precise and useful.
- Home Price, yes this is a list price, and thanks to you I found an issue with listing updates. Will need to fix this in the future.
- Thanks, I will update downpayment amount. I have a template, that can be customized for a different downpayment amount. But for now, I want to calculate the most common scenario.
- Thanks, I will update this.
- Yes, this is a very good idea. For now, however, I did not find a way to pull this data easily. Does tax values look off by a lot?
Thanks all for the valuable input. I will update the calculation and publish here my next iteration.
I see that most of the people use spreadsheets for their calculations, are there other tools you find useful?
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