Property Calculator (Interesting) your thoughts....

[claudio]

Hi Everyone,



Wanted to gather people's thoughts on the following property calculator I found through a website. Seems to be pretty close when plugging numbers and then comparing the formulation with my own separate formulation. What are your thoughts?



http://www.biggerpockets.com/forums/88/topics/25519-free-property-analysis-worksheet



click on highlighted blue text reading "REI Property Analyzer"



Cheers,

Claudio

 

[KevinSolomon]

I wouldn't use it. Only speaking for myself.



I run simple arithmetic that is faster. Purchase price is equal or less than 5x gross annual rent. I might even go as high as 8x if I'm intoxicated. 6x and even 7x is fine. For me.



In the linked example, just by looking at the gross rent of $22k and the cost basis of $220k and I know that the property is a dud. 10x gross annual rent? No thanks. My hobbies don't include burning money.



I would use the spreadsheet, if I had a lot of time to waste.

 

[kfort]

Do I understand correctly that you're buying properties that command 40k/yr rent for a purchase price of $200k?

 

[KevinSolomon]

[quote user=kfort]Do I understand correctly that you're buying properties that command 40k/yr rent for a purchase price of $200k?




Was buying. But, yes, you are correct.



http://myreinspace.com/public_forums/Real_Estate_Discussion/62-17378-Canadians_Snap_Up_US_Properties.html



You joined this forum approximately 10 months after I started my buying spree.

 

[kfort]

Interesting. Thanks for sharing.

 

[Matt Crowley]

It's a very basic spreadsheet...which has it's own inherent benefits ie. less model risk when the model is very, very basic.



- Does not consider semi-annual compounding on interest rate (feature pretty much all Canadian mortgages have)



I would say this analyzer is nothing special.



[quote user=KevinSolomon]I run simple arithmetic that is faster. Purchase price is equal or less than 5x gross annual rent. I might even go as high as 8x if I'm intoxicated. 6x and even 7x is fine. For me.


Where are you buying right now? 5x - 7x gross income sounds pretty amazing.



Basics and rules of thumb are great. They push away a load of properties that you shouldn't even consider.



I think we are talking about a precursory look at a property before the full in-depth analysis, but I think it is critically important to draw up a 5-year monthly forecast for the property that includes all cash outflows, especially renovations, expected maintenance, and repairs.



Maintenance and repairs are very lumpy payments of cash. They don't accrue in even $500 monthly amounts. They are often larger $2000 - $5000 hits, a lot of which can be anticipated from the property inspection report (with a good inspector).



Planning cash flow out will help ensure the property remains self-sustaining and will help to determine the size for the initial reserve fund.

 

[REQRentals]

[quote user=KevinSolomon]I wouldn't use it. Only speaking for myself.



I run simple arithmetic that is faster. Purchase price is equal or less than 5x gross annual rent. I might even go as high as 8x if I'm intoxicated. 6x and even 7x is fine. For me.






Were you buying 200K properties and renting for 3300+ ?



My impression was that you were more buying 50-80K properties that would rent for 900-1200 (which is same number but different)



The 200K+ properties were the ones Blackstone and others were buying and they quickly priced each other out of the market such that the deals no longer exists (as you say they were deals you did previously).



The cheaper deals you can still do but the neighborhoods get worse.



Last week we looked at a 4-plex for 16K and a 2 for 1 deal with a house for 49K with tenant paying 750. If you buy you get the fire damaged one next door for free.



Did not buy either as better upside in 80k houses rent for $ 1000 in better area where we can build new in few years. That and we prefer to collect rent online vs with a gun.



All of us who invested in 2010-2012 got great deals but the the market is more normalized now and you have to be more creative to get the same dollar.



What are you buying now ?

 

[Matt Crowley]

[quote user=REQRentals]The cheaper deals you can still do but the neighborhoods get worse.




Well said!



We have had a conversation in the past about yield compression and I think we are of one mind on this one.



I've dealt with the C and D class tenants. The incrementally higher yield doesn't really compensate for the substantially higher management costs that come with the demographic (mental health problems, drug habits, ...)



[quote user=REQRentals]That and we prefer to collect rent online vs with a gun.




Our strategy is to keep moving. Problem tenants consume a LOT of time. You are usually fighting over a couple of hundred bucks. But since they are occupying a $200k asset there is absolutely no way I can let the problem fester. Dealing with problem tenants means we miss opportunities to buy more property. It is not very long-term sighted in our opinion.



You have some interesting deals in the works! How are you selecting your US markets?

 

[kfort]

With regards to the original question, I still much prefer the REIN analyzer. If I recall, a quick google search (or the back of the 2.0 book) yeilds a copy of it. I also use a basic filter similar to above with adjusted numbers. I calculate gross rental return and since I target ugly houses (and get rid of the "ugly") I pretty much disregard whatever the current rent is.



monthly rent (post reno) X 12 / (purchase price + renovation costs) takes about 30 seconds to calculate and tells you a lot.



also as a rough guideline:

$800 monthly rent /$100k paid (post renovation) and you'll probably be cashflow neutral (very rough guideline) long term

$900 monthly / $100k = you should be fine if you didn't miss anything, you wont get rich and shouldn't lose your juice money

$1,000/ $100k = you'll be golden if you don't crank up the stupid

$1,1000/$100k = call me, i'll take care of it.



this is at 20% down, 30 yr amm, current market mortgage rates, and i don't buy condos.

 

[REQRentals]

[quote user=SweetZone]



You have some interesting deals in the works! How are you selecting your US markets?


We originally started in Orlando but ultimately selected Tampa for price depression (at the time), vacancies, economic diversity and the availability of the assets we were looking for among other things.

 

[KevinSolomon]

[quote user=REQRentals]

Were you buying 200K properties and renting for 3300+ ?



My impression was that you were more buying 50-80K properties that would rent for 900-1200 (which is same number but different)


Correct.



But the numbers still work. I would never pay 10x gross because I'm not interested in increasing my risk profile nor am I interested in waiting long periods of time to make money. To each their own.



[quote user=REQRentals]

The cheaper deals you can still do but the neighborhoods get worse.


Generally true in any market - bull or bear.



From my experience in 2010 to late 2011 good properties in good neighbourhoods were priced at 5x gross. In 2012 to 2013 it was 6-7x gross. Now it's 9-10x gross. Or higher.



The cheaper deals you can still do but the neighbourhoods get worse: so in 2010, the 'cheaper' deal were properties priced at 3x gross. So I avoided those.



[quote user=REQRentals]

All of us who invested in 2010-2012 got great deals but the the market is more normalized now and you have to be more creative to get the same dollar.



What are you buying now ?


Nothing.