Deal Or No Deal Using Excel Spreadsheets

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

Presentation Outline

• Review the basics
• View some examples
• Play with variables
• Some handy hints and advice
• Questions


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

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

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.

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


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

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!)

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

Which 2 bed duplex do I buy?
$189,900 - Robbinsdale $119,900 – South Mpls


Example – Robinsdale duplex
• $189,900 asking price
• Income $1740/mo
• Expenses $4570/yr
• Financing
– 20% down
– 6.5% interest
• Cash flow $4787/yr


Example – South Mpls Duplex
• $119,900 purchase price
• Income $1740/mo
• Expenses $10,510/yr
• Financing
– 20% down
– 6.5% interest
• Cap Rate 8.6%


4-Plex with 2 bedroom units
• Income $3875/mo
• Financing
– 25% down
– 6.5% interest
• Cap Rate 7.3


4-Plex with 2 bedroom units
• Income $3875/mo
• Financing
– 25% down
– 6.5% interest
• Cash flow $13,089/yr
• Cap Rate 9.4


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


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


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
– Add bedrooms, laundry, garages, fix up

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

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

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


Deal Or No Deal Using Excel Spreadsheets

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Deal Or No Deal Using Excel Spreadsheets