Rental Property Analysis Tool
Emerson House Buyers provides the Rental Property Analysis Tool as a guide to help you make an educated decision when purchasing real estate for your rental portfolio. This spreadsheet and the numbers included in it are provided as one way to analyze a rental property. Please consult with your property management company, title company, insurance agent, and realtor to verify all information.
Simply fill out the orange cells on the top (F1, G1, H1, F3, H3) and the left (B9, B10, B12, B14, B15, B16) of the spread sheet - all other numbers will calculate automatically.
We use return on equity (ROE) and return on investment (ROI) as the parameters to evaluate a deal. For most investors, Return on Equity (ROE) is more important that Return on Investment (ROI). We use ROI to ensure the property makes sense on the initial purchase but after the purchase we look at ROE.
We shoot for a ROI of at least 15%, and you will notice the ROI cells on the spreadsheet will turn green when ROI is at or above 15%.
But now you must look at ROE, as ROE is real money and should be treated as such! You wouldn't let a big pile of cash sit in your house and collect dust, so why would you neglect the equity in your properties?
- Example: Invest 20k into a house that has annual net income of 5k for a ROI of 25%. That's great at first glance. When you look further you notice you have 75k of equity in the home which equates to a 6.7% ROE (5k/75k). Notice these are two very different numbers and remember equity is REAL MONEY.
- Always ensure you are maximizing your equity.
We aim for at least 15% ROE, and you will notice the ROE cells on the spreadsheet will turn green when ROE is at or above 15%.
By using this tool you can easily tell if a rental will be a profitable addition to your portfolio. Simply look at Columns E and F, if they are green then the property is a "buy" if these columns are red then you need to get a better price.
Note: this tool is used to analyze rentals for cash flow, not appreciation. If your goal with the property is appreciation this calculator is NOT for you.
We hope you found this information valuable. If not, we hope you develop your own tool and use it to create real estate success for you and your family, friends, partners, etc.
If you have any questions about rental properties, purchasing houses or property management please let us know at 832-802-0848.
Happy investing!
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