More than Just Lines on a Map: Best Practices for U.S Bike Routes
Deal Or No Deal Using Excel Spreadsheets
1. Using Excel Spreadsheets
Quickly estimating the value of a
rental property
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
2. Presentation Outline
• Review the basics
• View some examples
• Play with variables
• Some handy hints and advice
• Questions
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
3. It is in the numbers!
• There are lots of methods and techniques
for evaluating real estate investments
– Calculators
– Worksheets
– Computer programs
• I will show you a simple one page Excel
spreadsheet to do it fast and easy
• Focus on 1-4 unit rental buildings – 1st yr
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
4. Why do it?
• If a property does not cash flow then why
buy it?
• You need a way to quickly evaluate the
hundreds of opportunities available
• Helps you in determining the true value of
a rental property
• You can use it to set a sale price or
negotiate a better deal
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
5. Basic information needed
• Purchase price
• Building income
– rent, laundry, garage, parking, etc.
• Financing terms
– Interest rate
– Percentage down
– Type of loan (fixed rate, ARM)
• Expenses – Tax, utilities, insurance, etc.
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
6. What it tells you
• If the property will cash flow
• Potential purchase price or value
• Net Operating Income (NOI)
• Return on investment (ROI)
• Capitalization rate (CAP rate)
• Cash on cash return
• All of the above help you make your decision
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
7. It is a new world for RE investors
• Bank financing is very tough to get
– Need cash! 20% -30% down (not 0 or 10%)
– Banks require cash reserves (6 months)
– Buildings financial history more important
– Pay 1.5% - 3% higher interest rate
– Credit scores of 720+ required
– Limit of 10 investment properties (up from 4)
– Appraisals must use local & recent comps
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
8. It is a new world for RE investors
• Property values are down
– Great for Buyers (the perfect storm)
– Tragic for many Owners (can’t afford to sell)
• Expenses are rising and won’t go down
– Taxes
– Utilities, gas, electric, water
Rents are rising (this is a good thing!)
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
9. This is all that matters
• The only way to increase the value of a
rental property is to increase the income
and or reduce the operating expenses.
• Many sellers forget this and still want too
much for a building, even though it looses
money for the buyer. Bank won’t loan $.
• A buildings value comes from CASH FLOW
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
10. Which 2 bed duplex do I buy?
$189,900 - Robbinsdale $119,900 – South Mpls
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
11. Example – Robinsdale duplex
• $189,900 asking price
• Income $1740/mo
• Expenses $4570/yr
• Financing
– 20% down
– 6.5% interest
• Cash flow $4787/yr
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
12. Example – South Mpls Duplex
• $119,900 purchase price
• Income $1740/mo
• Expenses $10,510/yr
• Financing
– 20% down
– 6.5% interest
• Cash flow $3094/yr
• Cap Rate 8.6%
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
13. 4-Plex with 2 bedroom units
• $450,000 purchase price
• Income $3875/mo
• Expenses $13,500/yr
• Financing
– 25% down
– 6.5% interest
• Cash flow $7401/yr
• Cap Rate 7.3
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
14. 4-Plex with 2 bedroom units
• $350,000 purchase price
• Income $3875/mo
• Expenses $13,500/yr
• Financing
– 25% down
– 6.5% interest
• Cash flow $13,089/yr
• Cap Rate 9.4
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
15. Play with the variables
• Change the purchase price to fit your
goals
• Modify the income & expense numbers to
match your plans for the building
• See what a new interest rate or change in
loan terms can do to help
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
16. Play with the variables
• Change the purchase price to fit your
goals
• Modify the income & expense numbers to
match your plans for the building
• See what a new interest rate or change in
loan terms can do to help or hurt you
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
17. Handy hints for financial success
• Buy buildings where the tenants pay the
utilities
– this controls a variable cost that only goes up
over time
• Buy buildings that have already been fixed
up
– Roof, HVAC, plumbing, windows, etc.
• Buy buildings with potential to increase
the income David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
– Add bedrooms, laundry, garages, fix up
4/6/2009 Keller Williams Classic Realty NW
18. Handy hints for financial success
• Buy from motivated sellers
• Get the lowest interest rate possible
• Don’t over leverage yourself
• Buy in areas where you can get good
tenants that pay you on time
• Minimize your vacancies
• Work with local banks for the best loans
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
19. What to remember
• Look on paper before driving
• Cash flow will get you through any economy
• Buy right
• Run a tight ship
• Beware of rising interest rates – they are
property value killers
• Today is the best time ever to invest in RE
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW
20. Thank You for your interest
• I can send you a free copy of this
spreadsheet
• I can teach you how to use it, and help
you evaluate your rental property
• E-mail me at davidbarr@kw.com
• Or call me at 763-463-7511
David Barr, Realtor, GRI, EMS
763-463-7511, davidbarr@kw.com
4/6/2009 Keller Williams Classic Realty NW