Evaluating the Numbers | Think Realty | A Real Estate of Mind

Evaluating the Numbers


Conservative calculations in your real estate investments can bring rewarding returns.

Last month’s article left you wondering about maintenance and vacancy and how that impacts the numbers discussed. If the investor as the CEO of their new real estate investment firm makes the right decision with respect to buying the right property, and working with the right property management, is it reasonable to think that such a property can be maintained and vacancies weathered with 40 percent of the acquisition price?

That is $41,980.00 to take care of these contingencies for the 30 years discussed. Many say that can be on the conservative side and the figure is much lower than that. So be it…Let’s be conservative. Subtracting the $41,980.00 from the $221,407.16, the remainder is $179,427.16. That is a great return and that figure does not include the $5,500.00 put back in the investor’s pocket, the $20,990.00 initial investment (still belongs to investor), rent raises, appreciation, tax benefits, or hedge against inflation. When you plug in these figures to evidence, the return any calculator will show is the sum of “ridiculous” as a final figure.

Since I like to play in the conservative waters, we can beat on these numbers a little more and see what we get. Let’s estimate that the monthly cashflow after the principle, interest, tax, insurance and property management is $250.00. That is a somewhat unsexy number for a $104,950.00 property. Especially when maintenance and vacancy are not part of the equation yet. It’s time to calculate:

$5500.00 spent

22-month recovery at $250 per month

338 months left to cashflow (360-22 = 338)

$84,500.00 cashflow ($338 months X $250.00)

$168,460.00 income ($84,500 cashflow + $83,960.00 paid off loan)

$41,980.00 contingency for   maintenance and vacancy for 30 years

$126,480.00 total income subtracting the contingency fund of $41.980.00

All together =

$5,500.00 paid back

$20,990 still invested in the property

$126,480.00 clear profit

$41,980.00 contingency

$194,950.00 total

So, we see at even a small income of $250.00 per month this one investment can generate $126,480.00 of profit on top of paying the investor back their $5,500.00 and holding their $20,990.00 in a secure place where their Mr. Hyde consumer cannot take it and buy a depreciating toy.

DISCLAIMER: This article is for informational purposes only, contains the opinion of the author, not necessarily the opinion of SecurityNational Mortgage Company, and should not be construed as lending advice. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet LTV requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines, and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over life of loan. Reduction in payments may reflect longer loan term. Terms of the loan may be subject to payment of points and fees by the applicant. Equal Housing Lender. SecurityNational Mortgage Company Inc. NMLS# 3116. Any amounts, figures, payments or loan terms stated are based on continually changing markets, rates, loan programs and borrower specific qualifications, and subject to change without notice.

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