Rental Real Estate Series: Part 3 – Analyzing Rental Real Estate Returns

When analyzing rental real estate returns you should at least consider the tax implications and the cash flow.  Over time, I have changed my analysis approach here and there but I do like to keep it pretty simple still.  You can get bogged down in the analysis if you get too in-depth on it.  The best deals will sell quickly in about any market so it helps to see a quick summary to at least offer on a property.  Usually this analysis tells me enough to buy something based simply on the below.  I have set this up in a template so I can just update the Assumptions and everything self-calculates.  No matter how detailed you get, the real life numbers will be different anyway.  Keep in mind this is assuming zero vacancy and no turnover costs, that is why I have it calculate the monthly carrying cost if vacant because that will help you determine how much cash to keep in reserves (see the prior post on vacancy and turnover costs if you haven’t yet).

So here it is, my summary Rental Analysis (best viewed on a desktop/laptop/tablet).  I updated the Assumptions on the right side and it self-populates the left column.  Feel free to reach out if you want a copy of the file itself to get all the formulas!

Rental Analysis
Rent Assumptions
Tax Implications of Rent $1,650 Monthly rent
$0 Mortgage principle
$19,800 Annual rent income $3,430 Maintenance costs
($2,727) Depreciation $0 Principle and interest on mortgage per month
($3,430) Maintenance costs $4,500 Annual home insurance and property taxes
($4,500) Annual home insurance and property taxes $0 Annual mortgage interest
$0 Annual mortgage interest 25% Incremental tax rate; 5% State and 20% Federal
$9,143 Annual net taxable income
$75,000 Purchase Price + Capital Improvements
25% Incremental tax rate
$2,286 Estimated taxes on rental income
Cash Flow of Rent
$19,800 Annual rent income
$0 Annual principle and interest on mortgage
($4,500) Annual home insurance and property taxes
($2,286) Estimated taxes on rental net income
($3,430) Maintenance costs
$9,584 Estimated annual net cash flow
$661 Monthly carrying cost if vacant

7 thoughts on “Rental Real Estate Series: Part 3 – Analyzing Rental Real Estate Returns

      1. Time, Value, Money

        I think they make a good alternative when you don’t have the capital to fund real estate out-right.

        If you or any of your followers have invested in crowd funding real estate I would be interested in hearing about your experience.

        Liked by 1 person

  1. Good article. I like the break down of the numbers. I love spreadsheets and numbers. I have been in real estate for about 12 years and I like every side of it.
    Matt – reinvestwise.com

    Like

  2. Pingback: How to Get Little Kids to Love Math – Mile High Money Guy

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