Software for Buy and Hold Analysis over the LONG haul?

Question

Hi,

I have been looking, but with no luck, for a Buy & Hold analysis program for the long haul - meaning where you could project inflation into the rents, maintenance etc. And also that might show returns on overall vs on cash etc....

I am only one property into my Investing experience so far, but am looking to do many more and want to be able to be very thorough with projections etc...

Up to this point, I have just used a freebie from Dinkytown, which is great for basics, but I am looking for more. I realize Excel could do this, but I am not THAT good with it ;-).

Any thoughts, and thanks for all of the help you all are willing to give to us newbies!

Dan Dietz

J Scott · Answer

This is why I generally suggest people build a custom spreadsheet that takes into account the data they're looking to generate and also takes into account their personal financial situation for things like reinvestment yield and tax consequences.  But, as Jon said about, garbage in-garbage out is what these types of long-term analyses generally degenerate into.

For what it's worth, the third most downloaded document in the BP Fileplace is the rental analysis spreadsheet I posted...it captures the bulk of what I believe it necessary to do a full analysis of a SFH rental -- add in an IRR analysis to account for DCF (or NPV analysis if you have more cash than deals) and I think you have a pretty good portfolio of tools to determine if a deal is worth considering further.

J Scott · Answer

The problem I see with sophisticated software for analyzing long-term rentals is that the complexity of the software is going to far outweigh the accuracy of the inputs.

For example, being able to model the impact of inflation in rents and material costs is a fun exercise (for some of us :), but realistically, you're going to have to guess what actual inflation will be and if you're guess isn't accurate (which it won't be), your results will be meaningless -- and the longer out you project, the more meaningless the projections become!

Unless you have a crystal ball, why not just assume that inflation in gross income will track inflation in expenses/capex, and long-term your ROI and cash-flow numbers will be about the same as the short term.  That assumption is just as reasonable as any other assumption you might make.

Once you get rid of the unnecessary complexity, there isn't much you shouldn't be able to calculate using a simple excel spreadsheet (or a pen and paper).  99% of it is addition, subtraction, multiplication and division.

Don't make it harder than it needs to be!

Jon Holdman · Answer

Do not make this too complex.  Trying to factor inflation, price appreciation, rent increases has another name - guessing.  You can build as complex a piece of software as you like (that's my day job) but without any real data its garbage in, garbage out.  And guesses about inflation are just guesses.

Thierry Van Roy · Answer

Sorry, didn't mean it as a critique towards you. Especially if you flip I get why this is overcomplicating stuff, though there's probably a lot more risk management concerned with that sector. I'm just saying, there's more to it than inflation over the long haul (see thread's title). There's also market yield (reinvestment yield), loan amortization, tax VS debt, exit yield etc.

I recently started reading "What every real estate investor needs to know about cash flow..." by Frank Gallinelli. If anything, you need to understand the formulas and the numbers if you decide to go this route and not just use software. That's where things indeed get overcomplicated.

J Scott · Answer

I never said you shouldn't do a DCF analysis.  You should easily be able do to do that using a simple Excel spreadsheet...I believe I've even written a couple blog posts about it and used Excel to generate the outputs...

Thierry Van Roy · Answer

Custom spreadsheets give me the confidence to trust the numbers. I don't agree on with J Scott, there is a big difference between initial yield and discounted cash flow. And this is mostly important because you can see when the possible difference in results becomes a dealbreaker.

Having said that, I stuck to Excel, most software doesn't allow for Monte Carlo scenarios, making them more flashy than useful. I also love to tinker with my formulas. :p

Steven Hamilton II · Answer

I love excel.

Ellis San Jose · Answer

@J  Scott

I'm with you on this one.  Don't make it harder than it needs to be.

@Daniel Dietz

Yardi is what the "institutional investors" would use to do analysis with IRR, NPV, sensitivity analysis etc.

Joel Owens · Answer

I use rentalsoftware.com

It was created by a CPA and investor here in Georgia. I like the fact that I paid 99 dollars and I own it. It has custom Macro's and uses Excel. Some other systems have online usage and charge a monthly fee which I would never use. Those are just trying to milk you with monthly fees.

You can play around with Excel and create one off things on your own but I value time so I want someone else to create that and I do the inputs and print out a quick report to .pdf.

J Scott · Answer

Sheesh...you crazy computer guys... :-)

Software for Buy and Hold Analysis over the LONG haul?

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