Example Worksheet
Analyzing the Income Benefit for the first year of ownership by the new landlord (YOU) is the critical first step in determining whether or not to buy a particular investment property. There are certain figures you will need for this calculation. Let’s use this scenario below to start the analysis. Download and print the worksheet for the investment property calculator to follow along – be sure to use a pencil!
You spot a duplex for sale that costs $165,000 and you determine from the list agent that rents are $750 each per month. You will put 20% down- $33,000 and finance the rest- $132,000. After plugging the loan numbers into a simple mortgage calculator for a 30 yr fixed loan at 7%, the P/I payment is only $878.20/month. Wow, you’re making almost $700/month in income! Hold on there, lets not get ahead of ourselves. The list agent calls you back with a list of expenses for the past year:
- $900/Insurance
- $2000/property tax
- $1075/repairs
- $750/lawn maintenance
- $250/Pest control
He also gives you the total annual rent: $16,500 : For 2 months one side of the duplex was vacant.
Assume you are to purchase this property on January 1 and have 12 months of income and expenses.
Plug in the numbers so your worksheet looks like this.
Fantastic! Your income or Cash Flow Before Taxes (CFBT) is almost a $1,000. Not bad considering 2 lost months of rent!
So you have a positive cash flow situation. It would be a good idea to continue working on the analysis of this property to determine if this may be a solid investment. For Fun – play with the numbers and change the scenario. For example, see what happens if you purchase the property in March giving you only 9 months of the annual income and expenses and see how this increases or decreases your Income or CFBT. Also include some mortgage loan closings costs as part of the Purchase Cost. Next we’ll look at benefit #2 – Principal Reduction.
Return from Income Benefit to Real Estate Investment Benefits
