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One of the most important things every investor needs to do before purchasing a property is a profitability analysis. At first glance, many deals seem great, but upon further review turn out to be less than ideal. You just can’t tell for sure until you do the numbers. That’s where this spreadsheet might come in handy.
If you have Microsoft Excel (or OpenOffice), this financial spreadsheet will do the analysis for you. I find particularly useful when scrutinizing deals as you can quickly determine if a property is worth further research by simply plugging in a few numbers. Simply enter the rents, expenses and financing and it figures out how profitable the investment will be. Of course, this is a very simplified spreadsheet. It does not account for major repairs, appreciation or tax benefits. However, it should give you a realistic snapshot of an investments potential.
I like to pay particular attention to both cash-on-cash return, which consider real-world financing scenarios, and the always popular cap rate. The percentage cash-on-cash return tells you how much money you will get back in a given year for the money you put it, while the cap rate is the yearly return assuming the property was purchased with cash.
You can download this spreadsheet for yourself by clicking on this link: Rental Property Analysis. Hope it comes in handy. If you have any questions or comments of the spreadsheet, please contact me.
What’s a particular cap rate or cash on cash return to aim for in a good property?
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Now that’s a question with a long answer. In the end, it really just depends on the property type and area. For instance, a 12-cap on a 4-family might be considered a good deal in Benton Park, but the same building might need to be a 15-cap in Benton Park West to meet that threshold. Duplexes tend to offer lower-cap rates, but the resale values tend to be higher since a lot of those properties are sold to owner occupants. This trend is even more obvious for single-family houses.