Making a Cash Flow Spreadsheet for Investing in Real Estate
Hi! I'm going to share some thoughts below the video, but if you'd like to get an overview of my thoughts AND see my spreadsheet in action, watch the video below!
Key Elements of any Cash Flow Spreadsheet
There's lots of room for debate here, but I think a good spreadsheet needs the following:
1) It needs to be simple.
If it's complex, you won't use it. Ultimately, my spreadsheet only uses 3-5 field for each property, which means I can fill it out very quickly for each property, so I can assess 10 properties in less than 45 minutes. How does that help? Well, out of 10 properties, about 7 or 8 aren't going to look good on paper, so now I can focus on just 2 or 3. That save a lot of time.
2) You should track rent metrics.
Without a doubt, the hardest thing to know is the rent. Landlords often have tenants below market, or the units are vacant. If you're diligent about tracking rental information in your spreadsheet, you can use it to make good predictions. I generally track it as $/sq foot/ month, which is a useful metric.
3) Make sure you're using the same assumptions
I make sure that my interest rates, percent down, and my "monthly costs" are all either the same or easy to configure. This is both to keep me honest and make sure that my cash flow numbers are conservative. Once you see a property, you can make more adjustments specific to that property, but for the initial screen, they should all be the same.
4) Good on paper might be good, might not be good.
Some properties look good on paper. Too good! Maybe the rents are going to be lower than average, or turnover is high, or crime in the area is higher than average. Maybe it's the building - a lot of cash intensive fixes coming due. Whatever it is, things that look too good to be true usually are - so make sure you take a close look before buying.