Lesson 6: ROI Pro Forma Analysis

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September 6, 2016 at 2:30 pm  •  Posted in f16-econ491 by  •  1 Comment

Wed, Sep 7

Review:

  • Comparable Sales Analysis

Presentation:

  • ROI Pro Forma Analysis
    • ROI Pro Forma worksheet
    • Begin with Valuation – what’s the property worth?
    • Estimate rental income – fair market rent?
    • Estimate expenses
      • Property taxes
      • Insurance
      • Maintenance
      • Repairs
      • Management
      • Utilities
    • Use an amortization schedule
      • Calculate interest payments
      • Calculate principal payments
    • Estimate tax benefits
      • Depreciation
      • Tax shelter
      • Tax savings
    • Make assumptions
      • Appreciation of property value
      • Rent appreciation
      • Expense inflation
    • Estimate ROI
  • The story of 235 E Adams
    • Purchased from Freddie Mac (foreclosure) in May 2012
      • Paid $32,900
    • Paid less than half estimated value (my estimate)
      • Why? Banks wouldn’t loan on the property
      • How? I offered cash
      • Can I do it too? Probably not; 2010-2012 was a once in a generation opportunity
    • Remodel/repair
      • Removed exterior stairs
      • Converted from Duplex back to Single Family
      • Cleaned
    • Rented for $700/month, eventually up to $875/month
    • Last tenant had to be evicted, left a mess
    • I decided to sell (getting sick of being a landlord) and “carry the note” (seller financing)
      • Sold for $110,000
      • $10k down payment
      • $100k loan @ 8.9% interest
    • Currently collecting mortgage checks. I like it better than collecting rent.

Assignment:

  • Use your Subject Property
  • Make a copy of the ROI Pro Forma worksheet
  • Fill out ROI Pro Forma worksheet
  • Estimate Total and Annualized ROI

 

One Comment

  1. Shannon Roppolo / September 27, 2016 at 11:53 am / Reply

    I’m having trouble finding the annualized ROI for my properties using the calculator. I think that I am using the wrong numbers. Can you give me tell me what numbers to use to find it? Thanks

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