The mistery of Cash Flow Analisys! - Posted by Anthony

Posted by Tobeykins on November 21, 2000 at 24:10:33:

Loved your coments. What is also a good idea from my rental experience is long cord shower massagers ($30) and a move-in gift-I used to give a set of bath towels and mat and curtain in their choice of colors for moving day so they wouldn’t have to unpack to take a nice shower or bath.
Not only did they love it when they got it, they also said that the gift made them feel good about the relationship. Some tenants even called me a “landangel” instead of a landlord. If they only knew all those spiffs helped me rent the units for 20%-40% more than before! (Also repainted, etc. to get the increases)

The mistery of Cash Flow Analisys! - Posted by Anthony

Posted by Anthony on November 20, 2000 at 17:05:08:

Hi everyone.

I’m a beginer in REI and now working to buy my first house and income investment.
I have read the many comments from many of you. Good and no so good. I think, that the most important part of the business is the CASH FLOW Analisys.
Knowing how much we can afford, how much income, cost and how we can profit for a situation is the most critical.

But, how do I asses these costs. How about in a economic
slowdown, would I have to dicrease my rent?

Your opinion ALL ARE WELCOME.

Re: The mistery of Cash Flow Analisys! - Posted by Rich

Posted by Rich on November 28, 2000 at 21:54:07:


Cashflow is no mystery. It doesn’t have to be a chore.

I did my own automation for figuring cashflow. I created a spreadsheet template in Excel that has 80% financed and 90% financed calculations already done. I just plug in the asking price (I adjust down 5-10% to calculate the price I will offer). I plug in my annual rents minus a 10% or 20% vacancy rate to get gross income.

Now I start to plug in my expenses: Taxes, insurance, gas/oil heat, snow removal/lawn care, water/sewer, trash, licenses, electricity. I put in a budget for replacements (appliances, etc.), and a maintenance fee (usually $45-55/unit/mo). I pay myself a management fee of 6% of gross income.

When I subtract my expenses from my gross income, I get Net Operating Income. This is what I have available for debt service.

My spreadsheets have built-in calcs for P+I at 80% and 90% financing, so I can see if the debt service is adequate. (I also have calcs for 2nd mortgages if needed).

I then calculate my down payment (if any), closing costs, and rehab costs to give my total investment.

My sheet automatically amortizes my investment over the life of the loan(s) to show my payback period for my investment, and ROI.

I spent some time to do the spreadsheet once, saved it as an Excel template, and use it over and over. I create a Workbook for each property I analyze, and plug them into an Access database (along with pictures, descriptions, faxes, seller info sheets, contact information, etc.).

BTW, it takes me about 2 minutes to plug figures for a potential investment property into this sheet. I have a summary line at the top of each workbook which gives me a snapshot of my investment, cashflow, ROI, and payback period.

I even exported this spreadsheet to my PalmPilot (I use TinySheet on my Palm) so I don’t have to drag a laptop with me – I can do the same calcs (not formatted as nicely) on my Palm if I’m out and about, then export the data when I synch my Palm with my computer.

Standard MS Office tools – a little bit of thought and work to build the template and MS Access database, and I have a no-brainer, plug it in, cashflow analysis.

If you plan to do many investment properties, or even to get to your first, spend the time to build the spreadsheet yourself – it will help you understand all the components that you should/can include in your analysis. Look on the boards here, and take their advice. Read Sheets, Kiyosaki, Allen, and others.

There is no mystery, just education.

Good luck! (BTW, I won’t sell or give away my templates because I do NOT want to EVER maintain them for someone else).

Re: The mistery of Cash Flow Analisys! - Posted by Mike

Posted by Mike on November 20, 2000 at 22:19:13:

The mystery of cash flow analysis is no mystery at all!

Start with the gross monthly rent. In my area, investors use the 30% rule to estimate operating expenses. For example - suppose the property rents for $800, subtract 30% ($240) and that leaves $560 per month to service debt (mortgages, loans).

In times of economic down turns, one needs to be creative to ensure the property stays fully rented. Reducing the rent is one way to “sell” the prospective renter. I just rented one of my houses. I was asking $1000 - had lots of calls but no takers. I reduced the rent to $975 and rented it immediately. There was something psychological about $1000. Likewise, I had another apartment I was hoping to rent for $700, I reduced it to $685 and it went quickly at the lower rent. Being creative means more than lowering the rent. I have paid for a move (cost $130), paid for 4 months of cable (cost $120) and installed new flooring (cost $400) to rent units. In these cases I was able to rent it at my target price. If you let an apartment sit empty one month and lose $700 (or whatever you are getting for rent), it takes many months at $25 per month to catch up, if you ever catch up at all.

My wife says it best, “Renting a suite is an impulse decision, much like buying a house or a car.” Prospective renters view the place and if they like it, they take it. When showing a place, take time to learn a little about the prospects so you can tailor your presentation to them, that is highlight property details that would appeal to them - young family with small children - talk about how close it is to schools, how the fenced yard is a safe place for kids, and how certain rooms can be used as play areas. The same property being rented to a working couple - the fenced yard is good for their little dog, the play area can be used as a workshop or an office, easy access to major routes, etc… Use an upbeat tone of voice and body language, inject a little humor when appropriate and always have your lease agreements handy!

Re: The mistery of Cash Flow Analisys! - Posted by adriana

Posted by adriana on November 20, 2000 at 21:00:20:

hi congrats on becoming a R.E.investor Ive been an investor for 9yrs approx. The only advice I can give is to jump in the water. Dont worry about decreasing rent it is very unlikely here in Ca. we rent out to low income which the government pays (section 8 housing) so rarely you decrease rent but you must buy the property at a low loan to value so you can get some possitive cash flow good luck I hope you just dont talk about it and but into action remember action speaks louder than words