Lesson 6: ROI Pro Forma Analysis

September 6, 2016

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
    • Total
    • Annualized – ROI Calculator
• 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