Just use the basic IRV formulas: I=investment, R=rate of return, V= present value.

If you invest $100000 and expect a 10% rate of return, then you should rent it for $1000.00 a month. If you need to do $20000 in repairs so the property will rent for $1000 a month, then you should only invest $80000 to purchase the property. If you are going to invest $120000 for a piece of property that you are going to rent for $1000 a month, then you will only receive an 8.33% rate of return. Still better return than what other investments are offering these days.

Of course, your investment costs should include purchase price, insurance costs, acquisition cost, repairs, etc. and these will have to be calculated separately for each investment because every home and every market is different. In this market, I would not consider a property unless it will yield a return higher than 10%.

This can be done with simple math functions, you really don't need a complicated formula. You do need estimates from a contractor, knowledge of the rental market supply and demand, good faith estimate from your lender, and a knowledgeable Realtor sure helps.

Brenda Gravitt CRS, GRI
Coral Shores Realty
904-573-9638
bkgravitt@gmail.com

Raj

I forwarded this question to a friend of mine he, and here was his response:

He chose not to include his spread sheet because it’s not as intuitive as the website below, and his disclaimer is that if your tax bracket is different or if you use it and lose a bunch of money, he doesn't want you to blame him…

For a simpler spreadsheet go to this web site: http://www.narreia.com/

At the lower right corner you’ll find a link that takes you to a free cash-flow calculator. You’ll have to register (I did – no big deal, and no gush of unwanted spam – just an occasional offer of property that someone else is selling with the calculator filled in – interesting).

The person who posted this question is naive. He/she is looking for a simple way to judge a property’s worth as an investment, but there is a lot of risk. I wouldn’t try to help him…(so i am sending you the website)

He left out a lot of things – buying and selling expenses, capital gains upon sale, depreciation, and so on. I don’t just look at cash flow, but also look at before tax (cash flow) and after tax returns.

He also is looking at the average stock market return (S & P 500 Index fund). Bad measure of merit. One can beat that with rather little effort in the stock market. Much better to compare with a fixed income investment, like AAA tax-free bonds…

Anyway, register with NARREI, download the cash flow calculator, and work a few properties with it.

Good Luck Raj and to all who decide to play the game.

Raj, I can wait to forward your answer to him.

Raj, email me at msandersz@comcast.net

What time period do you want to use for the S&P return based on last 6 months? 1 yr? 3 yr? = It's a variable. So you can put whatever value you want.
Does down payment % change with different lenders and qualified borrower? = Again it's a varaible. So put your own value.
Do you solve for present value, future value? = Make the value as a variable and plug in the number that you need.
It can be and has been written. = Yes it has been written but most of them are very basic. As you already getting into that track - there are several variables and the equation/formula can be different based on number of variables that you consider.
Give your best shot

What time period do you want to use for the S&P return based on last 6 months? 1 yr? 3 yr? Does down payment % change with different lenders and qualified borrower? Do you solve for present value, future value? It can be and has been written.