Built a google spreadsheet to understand the numbers, help me see what I missed?

[Mr. Frugalwoods]

Howdy everyone.  I've been thinking about getting into real estate for a while, but I wanted to make sure I understood the numbers properly before getting serious.

My goal is to get a better return than we could get in the broad stock market, with extra points for steady(er?) cashflow through economic downturns.  Aren't we all...

I've been looking at properties in small, regional population centers in New England -- near where we're planning to decamp to once we're FIRE'd and not too far from where we're living now just outside of Boston.

As I've been looking, I've been trying to run the numbers for each property to see what's "normal" in a certain market, at least for MLS properties using this spreadsheet I built:

https://docs.google.com/spreadsheets/d/1erx_fWZgPxVGDR7ivKEYaw7tAK45pZHoNOOxMRXMQ7M/edit?usp=sharing

(note, unless otherwise indicated all numbers are annual, not monthly.  Gold cells are variables, everything else is calculated.)

I've loaded in the actual details for a property I've recently seen.  Solid rental history, and the rents are current medium term tenets.

Expenses are mostly actual (Prop Taxes, Water, Heat, Snow, Insurance) except for my estimates (Maint / CapEx, Vacancy, Management).  I've seen it in person, and there is some deferred maintenance but nothing insane.

Final numbers I came up with for this property:

Cash on Cash   11.95%
CoC + Equity   20.04%
Cap Rate   8.61%
10 year XIRR   16.21%

What am I missing?  Am I looking at the right numbers?  Do I know how to use google spreadsheets ;-)

[iamlindoro]

Just from a quick look, my cautions would be:

1) You are estimating a very low vacancy.  Personally I don't feel comfortable estimating below 10% now matter how good the market is.  The thought process there being that eventually, even with low vacancy, you'll get a problem tenant and pay both for the eviction and with a potentially lengthy eviction process.

2) PM at 8%.  I know that some people pay this, and there's nothing wrong with that.  Standard is 10%, and just be very careful if you employ a budget PM to make sure you're not getting budget service.

3) No tenant placement or lease re-signing fees.  Most PMs charge between half and a full month's rent to place a tenant, as well as some amount (flat fee or another portion of the rent) for a lease renewal.  Worth figuring out once you know your PM's pricing and working it into your budget.  This could quickly cut your cash flow in half, or even worse.  I'm guessing from the 25% down that this is a multifamily, so how often do you estimate you will place a new tenant?  Worth getting a realistic idea, then figuring out the cost.  My personal estimate is that in my duplexes I will place a tenant each year and renew a lease each year, which works out to an average stay per tenant of two years.

4) Any lawn service needed to avoid fines from code enforcement?

If any or all of the above should be figured it, you can see how a property can quickly go from profitable to marginal.  Good luck!

[Mr. Frugalwoods]

Just from a quick look, my cautions would be:

1) You are estimating a very low vacancy.  Personally I don't feel comfortable estimating below 10% now matter how good the market is.  The thought process there being that eventually, even with low vacancy, you'll get a problem tenant and pay both for the eviction and with a potentially lengthy eviction process.

Yeah, I honestly don't have a good handle on what this number should be.  For this particular rental, 2 units have had the same tenant for 4 years, the other unit's tenant has been there for 1.5 years.  I've had trouble finding good data from local sources on vacancy rates... a lot of anecdotes.

2) PM at 8%.  I know that some people pay this, and there's nothing wrong with that.  Standard is 10%, and just be very careful if you employ a budget PM to make sure you're not getting budget service.

The 8% is what a local recommended management company charges.  I expect we'll probably try to manage it ourselves though, but I wanted to budget for a manager anyway.  Gotta pay myself!

3) No tenant placement or lease re-signing fees.  Most PMs charge between half and a full month's rent to place a tenant, as well as some amount (flat fee or another portion of the rent) for a lease renewal.  Worth figuring out once you know your PM's pricing and working it into your budget.  This could quickly cut your cash flow in half, or even worse.  I'm guessing from the 25% down that this is a multifamily, so how often do you estimate you will place a new tenant?  Worth getting a realistic idea, then figuring out the cost.  My personal estimate is that in my duplexes I will place a tenant each year and renew a lease each year, which works out to an average stay per tenant of two years.

Yep, this was sorta intentional.  At least in this area craigslist is pretty hopping and the several landlords I talked to all said they didn't have a problem getting their units rented without the manager.  It's some amount of work, but we're planning to live close by so hopefully it won't be too bad.

But I should probably add it into the calculations anyway.  Plan for the worst, enjoy anything better :-)

4) Any lawn service needed to avoid fines from code enforcement?

This far north the mowing season is pretty short, but this particular property would probably need to be mowed a couple times a summer at least.  Good call.  Not sure if that should be figured into the maintenance line, or something else.  Honestly I don't even know what the going rate is for a lawn mowing.  I'd probably do it myself, but I should budget for it anyway.

If any or all of the above should be figured it, you can see how a property can quickly go from profitable to marginal.  Good luck!

Thanks for the comments, really helpful!