surveyor’s ROI spreadsheet

[(former)FormerSanDiegan]

AN – My experience was similar. We purchased a Clairemont house for 160K in spring 1996. Rent for equivalent properties was 1000-1100 per month. Our mortgage rate was 8.25%.

SFH rents were about mortgage rates + 0 to 1% at the bottom of the last cycle.

P.S. – If rates go back up to the 8% range as I expect, I would expect prices in the same area would drop to somewhere in the 320K range. (I’m assuming real rent growth rates of negative 4 %, i.e. flat rents and 4% inflation).

[Eugene]

Let’s take a house that rents for 2000/month. I’ll use 6.25% 30-year fixed rates. 10% down loans can be obtained from FHA, you’d pay a little extra in closing costs and you’d have to pay 0.5%/year in mortgage insurance, but they do exist. (So I’m told)

It probably does not cash-flow as a rental property above 250k. (I’m too lazy to do the math and I don’t have a rental cash flow calculator handy)

At 285k, you can buy it with 10% down and PITI would be equal to rent.

If you view money you pay towards principal as “forced savings”, and you include tax benefits, owning starts making sense somewhere in 370-430k range, depending on your tax situation.

If you can afford to put 20% down, mortgage insurance goes away; even assuming 5% forgone interest on your down payment, you can justify buying the house as high as 475k.

[Eugene]

Let’s take a house that rents for 2000/month. I’ll use 6.25% 30-year fixed rates. 10% down loans can be obtained from FHA, you’d pay a little extra in closing costs and you’d have to pay 0.5%/year in mortgage insurance, but they do exist. (So I’m told)

It probably does not cash-flow as a rental property above 250k. (I’m too lazy to do the math and I don’t have a rental cash flow calculator handy)

At 285k, you can buy it with 10% down and PITI would be equal to rent.

If you view money you pay towards principal as “forced savings”, and you include tax benefits, owning starts making sense somewhere in 370-430k range, depending on your tax situation.

If you can afford to put 20% down, mortgage insurance goes away; even assuming 5% forgone interest on your down payment, you can justify buying the house as high as 475k.

[Eugene]

Let’s take a house that rents for 2000/month. I’ll use 6.25% 30-year fixed rates. 10% down loans can be obtained from FHA, you’d pay a little extra in closing costs and you’d have to pay 0.5%/year in mortgage insurance, but they do exist. (So I’m told)

It probably does not cash-flow as a rental property above 250k. (I’m too lazy to do the math and I don’t have a rental cash flow calculator handy)

At 285k, you can buy it with 10% down and PITI would be equal to rent.

If you view money you pay towards principal as “forced savings”, and you include tax benefits, owning starts making sense somewhere in 370-430k range, depending on your tax situation.

If you can afford to put 20% down, mortgage insurance goes away; even assuming 5% forgone interest on your down payment, you can justify buying the house as high as 475k.

[Eugene]

Let’s take a house that rents for 2000/month. I’ll use 6.25% 30-year fixed rates. 10% down loans can be obtained from FHA, you’d pay a little extra in closing costs and you’d have to pay 0.5%/year in mortgage insurance, but they do exist. (So I’m told)

It probably does not cash-flow as a rental property above 250k. (I’m too lazy to do the math and I don’t have a rental cash flow calculator handy)

At 285k, you can buy it with 10% down and PITI would be equal to rent.

If you view money you pay towards principal as “forced savings”, and you include tax benefits, owning starts making sense somewhere in 370-430k range, depending on your tax situation.

If you can afford to put 20% down, mortgage insurance goes away; even assuming 5% forgone interest on your down payment, you can justify buying the house as high as 475k.

[Eugene]

Let’s take a house that rents for 2000/month. I’ll use 6.25% 30-year fixed rates. 10% down loans can be obtained from FHA, you’d pay a little extra in closing costs and you’d have to pay 0.5%/year in mortgage insurance, but they do exist. (So I’m told)

It probably does not cash-flow as a rental property above 250k. (I’m too lazy to do the math and I don’t have a rental cash flow calculator handy)

At 285k, you can buy it with 10% down and PITI would be equal to rent.

If you view money you pay towards principal as “forced savings”, and you include tax benefits, owning starts making sense somewhere in 370-430k range, depending on your tax situation.

If you can afford to put 20% down, mortgage insurance goes away; even assuming 5% forgone interest on your down payment, you can justify buying the house as high as 475k.

[surveyor]

geez

You leave the san diego area for a few days and this is what happens…

No, the calculator is not specifically geared towards multi units.

The ROE/ROI value in the calculator should be noted is NOT appreciation. Many people do confuse the two. As for those who think it is too high, consider that ROE is composed of several elements of real estate value – appreciation, cash flow, loan reduction savings, and tax benefits. When all four are working well together, yes, virginia you can get ROE’s in the 20% or even higher.

For the San Diego/Mira Mesa area, the calculator is correct – you still have a ways to go before you are able to purchase a property, and have it cash flow as a rental. Certainly you can play with the factors and try to make it cash flow based on interest only or decreasing expenses, but you should do this based on knowing what you’re doing and as a way to compare other properties which don’t have those problems or non-issues. If you are serious about using the calculator to analyze the property, you should try to account for as many expenses as possible and try to also be realistic as to how you can change certain factors to make the property work. For example, you can be stupid and try to put in a 10% appreciation rate, which makes everything look supergoody. However, we all know the consequences of making such an absurd assumption.

As for me being a flipper, I have only flipped one property. My sister-in-law rented out her house in a very far off location, and the tenants trashed it. She wanted to basically jingle mail the property. I gave her an alternative, put in $20k to fix up the property and got it sold and made $20k in profits. I anticipate that is the only time I will ever flip a property.

Still, understand that the purpose of the calculator is not to flip (there are better calculators around for that) or to tell you the obvious – that it’s not going to cash flow in San Diego. The purpose of the calculator is to analyze and compare SEVERAL properties, each with its own ROE calculation, across the country. By using the ROE, you can decide which is a better buy – an SFR in Mira Mesa for $400k, or (in my case) a 4 unit property in Alabama for $115k. I put in there my criteria for choosing properties, but you should consider that for all the properties that meet my criteria, I have to choose which one. So depending on my wishes, I can choose a property with a low ROE or a high ROE, but my minimum is 20%. For more desirable areas and high vacancies, I will compromise with a low ROE (especially if the economy there is taking off). However, for lousy areas, I will require a higher ROE in order to offset the risk.

[surveyor]

geez

You leave the san diego area for a few days and this is what happens…

No, the calculator is not specifically geared towards multi units.

The ROE/ROI value in the calculator should be noted is NOT appreciation. Many people do confuse the two. As for those who think it is too high, consider that ROE is composed of several elements of real estate value – appreciation, cash flow, loan reduction savings, and tax benefits. When all four are working well together, yes, virginia you can get ROE’s in the 20% or even higher.

For the San Diego/Mira Mesa area, the calculator is correct – you still have a ways to go before you are able to purchase a property, and have it cash flow as a rental. Certainly you can play with the factors and try to make it cash flow based on interest only or decreasing expenses, but you should do this based on knowing what you’re doing and as a way to compare other properties which don’t have those problems or non-issues. If you are serious about using the calculator to analyze the property, you should try to account for as many expenses as possible and try to also be realistic as to how you can change certain factors to make the property work. For example, you can be stupid and try to put in a 10% appreciation rate, which makes everything look supergoody. However, we all know the consequences of making such an absurd assumption.

As for me being a flipper, I have only flipped one property. My sister-in-law rented out her house in a very far off location, and the tenants trashed it. She wanted to basically jingle mail the property. I gave her an alternative, put in $20k to fix up the property and got it sold and made $20k in profits. I anticipate that is the only time I will ever flip a property.

Still, understand that the purpose of the calculator is not to flip (there are better calculators around for that) or to tell you the obvious – that it’s not going to cash flow in San Diego. The purpose of the calculator is to analyze and compare SEVERAL properties, each with its own ROE calculation, across the country. By using the ROE, you can decide which is a better buy – an SFR in Mira Mesa for $400k, or (in my case) a 4 unit property in Alabama for $115k. I put in there my criteria for choosing properties, but you should consider that for all the properties that meet my criteria, I have to choose which one. So depending on my wishes, I can choose a property with a low ROE or a high ROE, but my minimum is 20%. For more desirable areas and high vacancies, I will compromise with a low ROE (especially if the economy there is taking off). However, for lousy areas, I will require a higher ROE in order to offset the risk.

[surveyor]

geez

You leave the san diego area for a few days and this is what happens…

No, the calculator is not specifically geared towards multi units.

The ROE/ROI value in the calculator should be noted is NOT appreciation. Many people do confuse the two. As for those who think it is too high, consider that ROE is composed of several elements of real estate value – appreciation, cash flow, loan reduction savings, and tax benefits. When all four are working well together, yes, virginia you can get ROE’s in the 20% or even higher.

For the San Diego/Mira Mesa area, the calculator is correct – you still have a ways to go before you are able to purchase a property, and have it cash flow as a rental. Certainly you can play with the factors and try to make it cash flow based on interest only or decreasing expenses, but you should do this based on knowing what you’re doing and as a way to compare other properties which don’t have those problems or non-issues. If you are serious about using the calculator to analyze the property, you should try to account for as many expenses as possible and try to also be realistic as to how you can change certain factors to make the property work. For example, you can be stupid and try to put in a 10% appreciation rate, which makes everything look supergoody. However, we all know the consequences of making such an absurd assumption.

As for me being a flipper, I have only flipped one property. My sister-in-law rented out her house in a very far off location, and the tenants trashed it. She wanted to basically jingle mail the property. I gave her an alternative, put in $20k to fix up the property and got it sold and made $20k in profits. I anticipate that is the only time I will ever flip a property.

Still, understand that the purpose of the calculator is not to flip (there are better calculators around for that) or to tell you the obvious – that it’s not going to cash flow in San Diego. The purpose of the calculator is to analyze and compare SEVERAL properties, each with its own ROE calculation, across the country. By using the ROE, you can decide which is a better buy – an SFR in Mira Mesa for $400k, or (in my case) a 4 unit property in Alabama for $115k. I put in there my criteria for choosing properties, but you should consider that for all the properties that meet my criteria, I have to choose which one. So depending on my wishes, I can choose a property with a low ROE or a high ROE, but my minimum is 20%. For more desirable areas and high vacancies, I will compromise with a low ROE (especially if the economy there is taking off). However, for lousy areas, I will require a higher ROE in order to offset the risk.

[surveyor]

geez

You leave the san diego area for a few days and this is what happens…

No, the calculator is not specifically geared towards multi units.

The ROE/ROI value in the calculator should be noted is NOT appreciation. Many people do confuse the two. As for those who think it is too high, consider that ROE is composed of several elements of real estate value – appreciation, cash flow, loan reduction savings, and tax benefits. When all four are working well together, yes, virginia you can get ROE’s in the 20% or even higher.

For the San Diego/Mira Mesa area, the calculator is correct – you still have a ways to go before you are able to purchase a property, and have it cash flow as a rental. Certainly you can play with the factors and try to make it cash flow based on interest only or decreasing expenses, but you should do this based on knowing what you’re doing and as a way to compare other properties which don’t have those problems or non-issues. If you are serious about using the calculator to analyze the property, you should try to account for as many expenses as possible and try to also be realistic as to how you can change certain factors to make the property work. For example, you can be stupid and try to put in a 10% appreciation rate, which makes everything look supergoody. However, we all know the consequences of making such an absurd assumption.

As for me being a flipper, I have only flipped one property. My sister-in-law rented out her house in a very far off location, and the tenants trashed it. She wanted to basically jingle mail the property. I gave her an alternative, put in $20k to fix up the property and got it sold and made $20k in profits. I anticipate that is the only time I will ever flip a property.

Still, understand that the purpose of the calculator is not to flip (there are better calculators around for that) or to tell you the obvious – that it’s not going to cash flow in San Diego. The purpose of the calculator is to analyze and compare SEVERAL properties, each with its own ROE calculation, across the country. By using the ROE, you can decide which is a better buy – an SFR in Mira Mesa for $400k, or (in my case) a 4 unit property in Alabama for $115k. I put in there my criteria for choosing properties, but you should consider that for all the properties that meet my criteria, I have to choose which one. So depending on my wishes, I can choose a property with a low ROE or a high ROE, but my minimum is 20%. For more desirable areas and high vacancies, I will compromise with a low ROE (especially if the economy there is taking off). However, for lousy areas, I will require a higher ROE in order to offset the risk.

[surveyor]

geez

You leave the san diego area for a few days and this is what happens…

No, the calculator is not specifically geared towards multi units.

The ROE/ROI value in the calculator should be noted is NOT appreciation. Many people do confuse the two. As for those who think it is too high, consider that ROE is composed of several elements of real estate value – appreciation, cash flow, loan reduction savings, and tax benefits. When all four are working well together, yes, virginia you can get ROE’s in the 20% or even higher.

For the San Diego/Mira Mesa area, the calculator is correct – you still have a ways to go before you are able to purchase a property, and have it cash flow as a rental. Certainly you can play with the factors and try to make it cash flow based on interest only or decreasing expenses, but you should do this based on knowing what you’re doing and as a way to compare other properties which don’t have those problems or non-issues. If you are serious about using the calculator to analyze the property, you should try to account for as many expenses as possible and try to also be realistic as to how you can change certain factors to make the property work. For example, you can be stupid and try to put in a 10% appreciation rate, which makes everything look supergoody. However, we all know the consequences of making such an absurd assumption.

As for me being a flipper, I have only flipped one property. My sister-in-law rented out her house in a very far off location, and the tenants trashed it. She wanted to basically jingle mail the property. I gave her an alternative, put in $20k to fix up the property and got it sold and made $20k in profits. I anticipate that is the only time I will ever flip a property.

Still, understand that the purpose of the calculator is not to flip (there are better calculators around for that) or to tell you the obvious – that it’s not going to cash flow in San Diego. The purpose of the calculator is to analyze and compare SEVERAL properties, each with its own ROE calculation, across the country. By using the ROE, you can decide which is a better buy – an SFR in Mira Mesa for $400k, or (in my case) a 4 unit property in Alabama for $115k. I put in there my criteria for choosing properties, but you should consider that for all the properties that meet my criteria, I have to choose which one. So depending on my wishes, I can choose a property with a low ROE or a high ROE, but my minimum is 20%. For more desirable areas and high vacancies, I will compromise with a low ROE (especially if the economy there is taking off). However, for lousy areas, I will require a higher ROE in order to offset the risk.

[CA renter]

surveyor,

I think your assumptions are excellent. The entire foreclosure “crisis” could have been completely avoided if buyers used conservative guidelines when making a purchase.

We should not assume the mortgage deduction will always be there, especially on investment properties. Same with Prop 13 protection. We have record levels of debt at all levels, and that includes the state and federal governments. They will need to increase revenues, and these protections would be the first things under consideration, if I were a politician.

Inflation was a given when we had the Baby Boomers pushing up prices for things over many decades. The buying power of the Boomers (with good incomes, more stable jobs, better healthcare & pension plans, etc.) is being replaced by the lower incomes of immigrants from poor countries. We also have lower wages & benefits for Americans due to globalization. It is no longer a given that housing prices will rise in perpetuity. We may well see declines for many years, perhaps decades.

Rents do not always go up, and rent increases should not be factored into the equation, IMO. As an investor, I’m looking at what the numbers tell me **right now** and try to consider what obstacles might lie ahead (higher vacancies, recessions, neighborhood deterioration, problem tenants, etc.). If things get better, lovely, but I would never presume they will do so, especially now.

[CA renter]

surveyor,

I think your assumptions are excellent. The entire foreclosure “crisis” could have been completely avoided if buyers used conservative guidelines when making a purchase.

We should not assume the mortgage deduction will always be there, especially on investment properties. Same with Prop 13 protection. We have record levels of debt at all levels, and that includes the state and federal governments. They will need to increase revenues, and these protections would be the first things under consideration, if I were a politician.

Inflation was a given when we had the Baby Boomers pushing up prices for things over many decades. The buying power of the Boomers (with good incomes, more stable jobs, better healthcare & pension plans, etc.) is being replaced by the lower incomes of immigrants from poor countries. We also have lower wages & benefits for Americans due to globalization. It is no longer a given that housing prices will rise in perpetuity. We may well see declines for many years, perhaps decades.

Rents do not always go up, and rent increases should not be factored into the equation, IMO. As an investor, I’m looking at what the numbers tell me **right now** and try to consider what obstacles might lie ahead (higher vacancies, recessions, neighborhood deterioration, problem tenants, etc.). If things get better, lovely, but I would never presume they will do so, especially now.

[CA renter]

surveyor,

I think your assumptions are excellent. The entire foreclosure “crisis” could have been completely avoided if buyers used conservative guidelines when making a purchase.

We should not assume the mortgage deduction will always be there, especially on investment properties. Same with Prop 13 protection. We have record levels of debt at all levels, and that includes the state and federal governments. They will need to increase revenues, and these protections would be the first things under consideration, if I were a politician.

Inflation was a given when we had the Baby Boomers pushing up prices for things over many decades. The buying power of the Boomers (with good incomes, more stable jobs, better healthcare & pension plans, etc.) is being replaced by the lower incomes of immigrants from poor countries. We also have lower wages & benefits for Americans due to globalization. It is no longer a given that housing prices will rise in perpetuity. We may well see declines for many years, perhaps decades.

Rents do not always go up, and rent increases should not be factored into the equation, IMO. As an investor, I’m looking at what the numbers tell me **right now** and try to consider what obstacles might lie ahead (higher vacancies, recessions, neighborhood deterioration, problem tenants, etc.). If things get better, lovely, but I would never presume they will do so, especially now.

[CA renter]

surveyor,

I think your assumptions are excellent. The entire foreclosure “crisis” could have been completely avoided if buyers used conservative guidelines when making a purchase.

We should not assume the mortgage deduction will always be there, especially on investment properties. Same with Prop 13 protection. We have record levels of debt at all levels, and that includes the state and federal governments. They will need to increase revenues, and these protections would be the first things under consideration, if I were a politician.

Inflation was a given when we had the Baby Boomers pushing up prices for things over many decades. The buying power of the Boomers (with good incomes, more stable jobs, better healthcare & pension plans, etc.) is being replaced by the lower incomes of immigrants from poor countries. We also have lower wages & benefits for Americans due to globalization. It is no longer a given that housing prices will rise in perpetuity. We may well see declines for many years, perhaps decades.

Rents do not always go up, and rent increases should not be factored into the equation, IMO. As an investor, I’m looking at what the numbers tell me **right now** and try to consider what obstacles might lie ahead (higher vacancies, recessions, neighborhood deterioration, problem tenants, etc.). If things get better, lovely, but I would never presume they will do so, especially now.

[Author]

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