I just put in an offer on my 3rd investment property and my 4th property owned in the last 5 years. Why not just give you the exact modeling I did to price out my rental property? Here is my free rental property excel spreadsheet.
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The Exact Same Rental Property Excel Spreadsheet I Use
I love investing in real estate. It’s simple and easy to understand. Plus, it’s one of the few investment opportunities that allow you to earn income and realize capital appreciation over time.
In my model, you can see why real estate is so attractive.
The value of your investment property can actually decline and you can still make money.
I track my investment property values with Personal Capital. It’s completely free and allows me to track and monitor my net worth over time.
For tracking my net worth, I don’t include the income and cash flow associated with my rental properties. Why? I view that as a separate business. I own that business and those assets.
Once I extract money out of those accounts to my personal assets is when I will count it. For now, the cash sitting in those accounts are simply reserves for future funding.
Here, I will highlight exactly how I think about investing in real estate. I’ll walk you through how to use an investment property excel model and give you the exact model that I use every day for free.
Why I Love Real Estate Investing
Real estate is a great asset class for investing. You earn cash flow from your investment and you can ride the upside return potential through capital appreciation.
In most of my single-family real estate investments, I don’t assume any appreciation at the sale price.
Real estate offers a sticky investment opportunity that is dynamic in various economic cycles. In various economic cycles, rents can actually rise during recessionary periods. People will always need a place to live and during a recession, new building likely hits a slowdown.
Tenants will generally opt-out of renting in luxury units and opt for duplex or single-family home renting. You get more bang for your buck.
Believe it or not, there have been situations where rents actually increased during recessionary periods.
Take a look at this data from the St. Louis real estate marketing during the Great Recession.
You can see in the image that new construction plummeted and vacancy rates ticked up slightly. But rents remained pretty sticky and did not lose much of the underlying value.
You don’t have to commit only to single-family real estate investing. In fact, you can use Fundrise to gain exposure to commercial real estate instantly.
Read more about Fundrise vs other platforms to learn how to use it to your advantage.
View Real Estate Investing As a Business With a Long-Term Horizon
Too many people will get into rental property investing without a long-term horizon. Nor will they view it as an operating business.
Will there be bumps and bruises along the way? Absolutely.
It’s a passive income investment with a little elbow grease sprinkled in.
Do you need to know how to fix every appliance in a home? No. Personally, I need instructions just to simply install a new lightbulb.
My skills are very limited from a handyman perspective.
I erode some of my margins by outsourcing fixes and repairs. It frees up my time to focus on other ways to make money.
Do not get discouraged by the required repairs and maintenance expenses. These will happen. They come in flows. Some months you will have a number of requests.
Then, you might have several quiet months. That’s good. If you can’t stomach or prepare for capital expenditures and maintenance, this business is not for you.
The cycle that works best for me is taking my online income and putting it into a safe, proven asset class like real estate.
If you know how to use a model, you can download the calculator by clicking the button below. Otherwise, follow my tutorial on how to use it to understand if the model is right for you.
How to Use My Investment Property Excel Model
Let’s get into the important instructions on how to use this rental property calculator to determine both your pre-tax and after-tax returns on your investment.
There are a few things you need to know about real estate investing that determines the quality of the opportunity:
- Cap rate and cash yield
- Internal rate of return (IRR)
- Payback period (in number of years)
- Multiple on invested capital (MOIC)
My rental property excel spreadsheet will include each of these metrics. Already own a home? You can use the spreadsheet to evaluate whether you should rent vs sell your home.
I’ll explain all the important inputs in writing below, but here is a video explanation about everything you need to know about the spreadsheet.
I’ll walk you through the model and even include a potential investment property as a case study.
Inputs Tab / Scenario Analysis
The first tab is the scenario analysis tab. This is where you can input the key assumptions to stress test different scenarios.
I like using this to build in the following scenarios:
- Upside case
- Base case
- Downside case
- Recession case
Within this tab, you can really bring in any input from the subsequent sheets to use this as a dashboard view of all your returns and assumptions. It’s fully customizable.
Revenue & Expenses Tabs
On both the revenue and expenses tabs, you can use these to build up your profit and loss statement based on your findings. The yellow cells are ones that are input cells and require your findings.
You can escalate both your revenue and expenses at various escalators, including a fully customized view on property taxes.
These are pretty straightforward, but please contact me at info [at] financialwolves.com if you have any questions.
The mortgage tab is as straightforward as it gets. With the mortgage amount, I like to input a 75% LTV assumption at closing, meaning that I put 25% down on the property. Again, you can input this in as a scenario to sensitize it accordingly.
The amortization will last as long as your assumption for holding the property (eventual sale in 5-10 years).
This is just enough detail for me. I’d prefer to focus on the revenue and expense side of the equation than getting too specific on mortgage amortization.
Before-Tax & After-Tax Cash Flow Summaries
Both the before-tax and after-tax cash flow summaries require no input from you. These are just summaries that help you understand the various revenue, expenses and cash flow for your rental property.
Here is where you make all your purchase price and sale price assumptions. For me, I like using the same sale price as my initial purchase price of the property. I really can only control the rent I charge and some of the expenses.
I can’t always control local market dynamics. I will make my best estimation to find attractive markets that people love to live in. I simply can’t bank on that.
See Related: Pros and Cons of Real Estate Investing
Discounted Cash Flow (DCF) Tab
Finally, the discounted cash flow (DCF) tab is a great way to see both your after-tax and before-tax returns on your rental property. This also shows your total profit, tax implications, internal rate of return and multiple on invested capital.
Use this tab to evaluate the opportunity and whether or not it is worth the risk. This tab is the single most important consideration in evaluating a new rental property investment.
Here is a snapshot of the DCF summary tab in my investment property model.
Above is both the before-tax and after-tax IRR outputs. I like to target investment opportunities on a pre-tax basis that yield at least a 10% IRR or greater.
Ready to start investing smarter? Click the button below to download the investment property excel spreadsheet to start investing in real estate.
You can even set up an MLS screener to start looking at properties to get familiar with crunching the numbers. This will help you get in the rhythm for various neighborhoods and markets.
If you aren’t building a financial model for your investments, you are investing blind.
See Related: Best Fundrise Alternatives to Invest
Conclusion on Rental Property Excel Spreadsheet
Using financial analysis is simply the best way to make decisions. You can peel back the layers on any given real estate investment opportunity to find answers and solutions to problems.
I’m a big fan of using the scenario analysis tab to make better decisions about the cash flow profile of an opportunity as well as the potential for capital appreciation.
Cash flow is king. Sometimes you simply don’t need appreciation in real estate prices to make a lot of money investing in real estate.
Without using an Excel model or spreadsheet, you are going into your investment completely blind with expectations. You need to take the time to set out a realistic forecast of returns. Then, after closing, make sure you can exceed your modeling expectations.
This is how you make money with real estate. Not by simply investing blindly.
Ready to invest in real estate like a pro? Download the model now to get started.
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