Here's a typical real estate investment spreadsheet. Just doing the math. Feel free to play along at home.
Monthly Rental Amount $2,400.00
Percent of Year UnOccupied 5%
Take out for Vacancy for Annual Cash In of $27,360.00
Property Acquisition Cost $300,000.00
Less Down Payment - Cash In $60,000.00
Amount of the loan $240,000.00
Payment Monthly Pricipal/Interest $1,556.64
Annual Insurance Cost $1,200.00
Annual Taxes $1,400.00
Annual Repairs Budget $600.00
Percent of Rent Mgmt Fee of 6%
These expenses total to Annual Cash Out of $23,521.28
Income of $27,360 minus cost of $23,521 = $3839 cash return over cash out
$3839 divided by cash investment of $60,000 = Rental Yield of 6.4%
______________
Percent of Year UnOccupied 5%
Take out for Vacancy for Annual Cash In of $27,360.00
Property Acquisition Cost $300,000.00
Less Down Payment - Cash In $60,000.00
Amount of the loan $240,000.00
Payment Monthly Pricipal/Interest $1,556.64
Annual Insurance Cost $1,200.00
Annual Taxes $1,400.00
Annual Repairs Budget $600.00
Percent of Rent Mgmt Fee of 6%
These expenses total to Annual Cash Out of $23,521.28
Income of $27,360 minus cost of $23,521 = $3839 cash return over cash out
$3839 divided by cash investment of $60,000 = Rental Yield of 6.4%
______________
Now here's the example for a typical overpriced Phoenix condo (real numbers based on personal experience. And I'm actually being kind as rent would have been around $900):
Monthly Rental Amount $1,100.00
Percent of Year UnOccupied 10%
Take out for Vacancy for Annual Cash In of $11,880
Property Acquisition Cost $300,000.00
Less Down Payment - Cash In $60,000.00
Amount of the loan $240,000.00
Payment Monthly Pricipal/Interest $1,556.64
Annual Insurance Cost $1,200.00
Annual Taxes $1,400.00
Annual Repairs Budget $600.00
Percent of Rent Mgmt Fee of 6%
These expenses total to Annual Cash Out of $23,521.28
Income of $11,880 minus cost of $23,521 = NEGATIVE $11,641 cash return over cash out
Monthly Rental Amount $1,100.00
Percent of Year UnOccupied 10%
Take out for Vacancy for Annual Cash In of $11,880
Property Acquisition Cost $300,000.00
Less Down Payment - Cash In $60,000.00
Amount of the loan $240,000.00
Payment Monthly Pricipal/Interest $1,556.64
Annual Insurance Cost $1,200.00
Annual Taxes $1,400.00
Annual Repairs Budget $600.00
Percent of Rent Mgmt Fee of 6%
These expenses total to Annual Cash Out of $23,521.28
Income of $11,880 minus cost of $23,521 = NEGATIVE $11,641 cash return over cash out
-$11,641 divided by cash investment of $60,000 = Rental Yield of NEGATIVE 19% PER YEAR
PLUS: Unit is now depreciating at least 20% in 2007, 10% in 2008 and 10% in 2009, total value decline of $105,600 over three years.
Add in the three years of $34,923 in negative income and you've lost $139,923 on your $60,000 investment in 36 months. Add in inflation every year, or what you could have made investing in gold, oil or even CD's and your real loss is even greater.
Bottom line - if you listened (or listen) to a realtor on commission and buy a place with negative cash flow today that is also dropping in price, you're a fool, and you'll likely go bankrupt.
And that's the math. Housing crash style.
PLUS: Unit is now depreciating at least 20% in 2007, 10% in 2008 and 10% in 2009, total value decline of $105,600 over three years.
Add in the three years of $34,923 in negative income and you've lost $139,923 on your $60,000 investment in 36 months. Add in inflation every year, or what you could have made investing in gold, oil or even CD's and your real loss is even greater.
Bottom line - if you listened (or listen) to a realtor on commission and buy a place with negative cash flow today that is also dropping in price, you're a fool, and you'll likely go bankrupt.
And that's the math. Housing crash style.
