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Deal Or No Deal   Using Excel Spreadsheets
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Deal Or No Deal Using Excel Spreadsheets

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The basics of cash flow analysis for real estate investing.

The basics of cash flow analysis for real estate investing.

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  • 1. Using Excel Spreadsheets Quickly estimating the value of a rental property David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 2. Presentation Outline • Review the basics • View some examples • Play with variables • Some handy hints and advice • Questions David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 3. It is in the numbers! • There are lots of methods and techniques for evaluating real estate investments – Calculators – Worksheets – Computer programs • I will show you a simple one page Excel spreadsheet to do it fast and easy • Focus on 1-4 unit rental buildings – 1st yr David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 4. Why do it? • If a property does not cash flow then why buy it? • You need a way to quickly evaluate the hundreds of opportunities available • Helps you in determining the true value of a rental property • You can use it to set a sale price or negotiate a better deal David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 5. Basic information needed • Purchase price • Building income – rent, laundry, garage, parking, etc. • Financing terms – Interest rate – Percentage down – Type of loan (fixed rate, ARM) • Expenses – Tax, utilities, insurance, etc. David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 6. What it tells you • If the property will cash flow • Potential purchase price or value • Net Operating Income (NOI) • Return on investment (ROI) • Capitalization rate (CAP rate) • Cash on cash return • All of the above help you make your decision David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 7. It is a new world for RE investors • Bank financing is very tough to get – Need cash! 20% -30% down (not 0 or 10%) – Banks require cash reserves (6 months) – Buildings financial history more important – Pay 1.5% - 3% higher interest rate – Credit scores of 720+ required – Limit of 10 investment properties (up from 4) – Appraisals must use local & recent comps David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 8. It is a new world for RE investors • Property values are down – Great for Buyers (the perfect storm) – Tragic for many Owners (can’t afford to sell) • Expenses are rising and won’t go down – Taxes – Utilities, gas, electric, water  Rents are rising (this is a good thing!) David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 9. This is all that matters • The only way to increase the value of a rental property is to increase the income and or reduce the operating expenses. • Many sellers forget this and still want too much for a building, even though it looses money for the buyer. Bank won’t loan $. • A buildings value comes from CASH FLOW David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 10. Which 2 bed duplex do I buy? $189,900 - Robbinsdale $119,900 – South Mpls David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 11. Example – Robinsdale duplex • $189,900 asking price • Income $1740/mo • Expenses $4570/yr • Financing – 20% down – 6.5% interest • Cash flow $4787/yr David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 12. Example – South Mpls Duplex • $119,900 purchase price • Income $1740/mo • Expenses $10,510/yr • Financing – 20% down – 6.5% interest • Cash flow $3094/yr • Cap Rate 8.6% David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 13. 4-Plex with 2 bedroom units • $450,000 purchase price • Income $3875/mo • Expenses $13,500/yr • Financing – 25% down – 6.5% interest • Cash flow $7401/yr • Cap Rate 7.3 David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 14. 4-Plex with 2 bedroom units • $350,000 purchase price • Income $3875/mo • Expenses $13,500/yr • Financing – 25% down – 6.5% interest • Cash flow $13,089/yr • Cap Rate 9.4 David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 15. Play with the variables • Change the purchase price to fit your goals • Modify the income & expense numbers to match your plans for the building • See what a new interest rate or change in loan terms can do to help David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 16. Play with the variables • Change the purchase price to fit your goals • Modify the income & expense numbers to match your plans for the building • See what a new interest rate or change in loan terms can do to help or hurt you David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 17. Handy hints for financial success • Buy buildings where the tenants pay the utilities – this controls a variable cost that only goes up over time • Buy buildings that have already been fixed up – Roof, HVAC, plumbing, windows, etc. • Buy buildings with potential to increase the income David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com – Add bedrooms, laundry, garages, fix up 4/6/2009 Keller Williams Classic Realty NW
  • 18. Handy hints for financial success • Buy from motivated sellers • Get the lowest interest rate possible • Don’t over leverage yourself • Buy in areas where you can get good tenants that pay you on time • Minimize your vacancies • Work with local banks for the best loans David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 19. What to remember • Look on paper before driving • Cash flow will get you through any economy • Buy right • Run a tight ship • Beware of rising interest rates – they are property value killers • Today is the best time ever to invest in RE David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW
  • 20. Thank You for your interest • I can send you a free copy of this spreadsheet • I can teach you how to use it, and help you evaluate your rental property • E-mail me at davidbarr@kw.com • Or call me at 763-463-7511 David Barr, Realtor, GRI, EMS 763-463-7511, davidbarr@kw.com 4/6/2009 Keller Williams Classic Realty NW