Financial Analysis Summary
We now have all the data to assess the value of this property, but keep in mind that our assessment is only for the first year of ownership of this property. In subsequent years, accrued annual equity will increase, expenses may rise (with inflation), rental rates may increase or decrease, depending on the market, your tax situation may change, and a host of other factors may contribute to the return on you investment either increasing or decreasing.
While you can’t predict the future, you should extend your analysis out a couple years, using trend data or demographic data that indicates the direction of the market, inflation, etc.
For example, here is a full financial analysis of this particular property, using a spreadsheet I’ve put together to easily create a financial model for any property.
As you can see, based on the assumptions that revenue will rise 3% per year (rental rates will increase) and operating expenses will increase 2% per year (inflation, cost of services, etc), our cash flow (and our rates of return) are increasing each year as well. An even more thorough analysis would take into account things like taxation issues, where with the tax deductions you’ll likely receive on the interest portion of your loan, your return may be even better.
You nailed it. I have read college level textbooks that don’t explain this as well as you just did. Well they explain it but not as simply and concisely.
All readers of your site would do well by themselves to internalize what you are laying out here and apply it. It is the basis of buy and hold strategies used by the biggest names in commercial real estate.
Thank you for the great explanations and examples
Thanks Larry…I appreciate that…
Wow! You truly are a professional real estate investor. The previous poster really said it all.
Thank you,
Elisha
Do you have a blank template of the FA? It looks very very well written and I am not good at excel at all. If not, do you have any thoughts on makeing one?
Thanks for your time. Great blog by the way.
Hey Kevin,
I plan to add it to Newsletter Subscriber Goodies page this week. So, if you’ve subscribed to the newsletter, check back to the goodies page in a couple days and it should be there…
I am a first time investor and have read tons of information but I have to agree with one of your previous reader that you have explain it as simply and concisely for even a first timer like myself can understand. Well done!
This is one of the best, most succinct explanations of multi-unit rental property analysis that I’ve ever read (and I’ve read quite a bit). Nice job, J! Like the previous commenter Larry said, you totally nailed it.
Love this spreadsheet for rentals – can I get a copy of the excel file from you anywhere? That would be so much easier than building it from scratch
Thank you!
Hey Justin –
Looks like you just signed up for the Newsletter. You should have received a link to a page with a whole bunch of documents and stuff. The spreadsheet is on that page. Let me know if you can’t find it!
I received the confirmation but can’t locate the newsletter. Thanks and great site!
Keith –
Just sent you an email with the link…
Great read.
I got the link for free goodies, thank you! however, I can’t locate the Spread Sheet for multi units. could you please send it.
Rick – Here you go: https://www.biggerpockets.com/files/user/jasonscott/file/20-sfh-rental-analysis