Hi everyone, I have only just started to investigate real estate as part of a ‘financial freedom’ goal that I have. I have been reading what I can and trying to decipher some of the meanings and calculators, and have also tried to put this together into my own spreadsheet for comparing properties (dropbox link below). I have probably made some terrible assumptions in here and would appreciate any feedback about my thinking.
Because of the equity I have in another property, I would not require any cash down, however, I didn’t know how to consider Cash on Cash Return without putting some cash down, so I included a generic 5% of purchase costs.
I have calculated ROI as rent/purchase.
I have calculated cash flow as Total rental income – total costs (including debt servicing)
I have calculated Cash on Cash return as Cash Flow / Cash Down
I am now looking at a range of wildly differing values and finding it very hard to understand how to accurately compare!
I have thought about my Investment Strategy which is to acquire property with potential for capital gain, and slightly positively geared (ie break even or better for 5 yrs Interest Only).
Any feedback would be appreciated, and I am thick skinned (learning is more important than my pride :) )
https://www.dropbox.com/s/gogn6u7qzhpq68o/Property%20Comparisons.xlsx?dl=0
Trevor
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This topic was modified 4 years, 9 months ago by
Trevor.
Hi Trevor,
I wanted to start by saying “Good for you for using a spreadsheet to start tracking this”. For me, I found it helped me to learn Excel from scratch, while also allowing me to finetune my thinking re my early Real Estate days as I went along. Each time I met another investor, or went to a seminar, read a book, etc – it all helped me to revise my thinking and thus make adjustments to my spreadsheet(s). In all, it was the learnings from that time that gave me confidence to take the first step and buy my first IP. So, go for it.
To your spreadsheet, it appears basically good to me. One point I’d suggest is that whatever equity you draw from another property should be considered to be the “cash” you put into the new one. That is because you are taking something of value to give you your Deposit. So (example) if you took $150k to be Deposit and Costs for a new IP, I would put that amount as my “cash down”.
Of course, the very act of borrowing to get that deposit also adds some extra Loan Interest into the equation, and in that case, I would include that loan cost as part of your total borrowings too. So you’d be paying interest on an IO loan for the bulk of the purchase, and also Interest on the Deposit/Costs Loan too. i.e. in effect your mortgage will be for like a 100% loan (maybe even 105%). That will make a huge difference to your monthly bottom line – but it needs to be considered in my opinion.
Other thoughts – I saw no line item for Insurances. Can be substantial depending on what you buy. I also noted some of your examples had no Body Corp, so you are obviously looking at houses as well as apartments or plexes. Were these actual examples, or simply a bunch of made-up figures? The reason I ask the latter, is that there appears to be a HUGE range of diverse options – so I’m leaning to “made-up numbers”. Am I right? If not, no worries, as (like I said before) it was my PLAYING with my initial spreadsheet number that gave me a base to grow from. So, keep it up.
I’m not a full bottle on NOI, ROI, etc so I’ll leave that to others – but I can say that Steve’s STEPS program goes VERY deeply into these, as it takes you through the Due Diligence path from beginning to end of a purchase, including all of the expenses and the various acronyms that go with it all, and (most importantly) how they interact to show you the TRUTH about a property based on its numbers.
Come back if you have more questions,
Benny
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This reply was modified 4 years, 9 months ago by Benny.
Hi Benny
Thanks for your reply, that is really helpful. I figure that I need to start somewhere so comparing with a spreadsheet will help me to increase my knowledge and experience if nothing else.
I hadn’t thought about insurance, thanks for that catch!
The figures are actually real figures. Most of the units are in an area where I am expecting strong capital gain over the next 5-10 years. The other properties look better for cash on cash etc, but the area is not expected to have any (or very little) capital gain so that is part of my decision making. Cash return now, or growth later.
Thanks again, appreciate hearing from others.
Regards
Trevor
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This topic was modified 4 years, 9 months ago by
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