Author Topic: I Made a Calculator for Real Estate Newbs - Feedback Please? :D  (Read 3047 times)

Felicity

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I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« on: February 27, 2017, 06:06:34 PM »
I made a calculator (Well, team effort between me and partner)!

Basically, I love tools like the NY Times Rent vs. Buy calculator, and I felt like there wasn't anything quite the same available for evaluating investment properties, especially multifamily properties with the intention of owner-occupying. I wanted a decent comparison of buying an investment property vs. taking all that upfront cash and investing it in the stock market.

And so, here's the first draft: https://fetchingfinancialfreedom.com/calculator-rental-property/

We've never bought/sold/owned property. BUT. I have read a fair bit on the forums here, some Bigger Pockets articles, and have creeped around my neighborhood via Redfin enough to have some basic idea of what the numbers all mean. Basically, I know enough to be dangerous. I'd love input from those with actual experience...actually, I'd love input from anybody, regardless of the level of experience.

Some questions we have in mind:
  • Do our methods make sense (listed on site)?
  • Is the visualization at all useful (and if not, do you have ideas for improvement)?
  • Should the default values be changed?
  • If you were using this tool to analyze a property, what additional questions would you have after looking at the results?
  • Any factors you wished we would have taken into consideration?

***Edited to add:

Current List of Planned Changes/Improvements [March 7th, 2017]
  • Change stock returns from 7% to 10% as default Done!
  • Add unique ID and/or some way to share calculator results Done! Slightly hacky, but definitely serviceable
  • Add "Other Monthly Expenses" field to capture HOA fees, etc Done! Currently it increases yearly by the [Rental Growth %]
  • More clarity to % expense fields and/or give option to switch between % to dollar figure
« Last Edit: March 07, 2017, 05:47:46 PM by Felicity »

waltworks

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #1 on: February 27, 2017, 07:28:09 PM »
Cool calculator. My only quibble is that if you're going to use nominal numbers for the RE, you should set the stock return default to 10% (nominal) rather than 7% (real).

I would also either not include the landlord equity in the comparison (especially if owner-occupied) or else subtract the ~10% in closing costs/commissions, as well as some sort of estimate for capital gains/depreciation recapture. That net worth number is (perhaps by necessity) simplistic, but your assumptions are also ignoring some of the costs of actually accessing the equity.

-W

Felicity

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #2 on: February 28, 2017, 08:54:54 AM »
Cool calculator. My only quibble is that if you're going to use nominal numbers for the RE, you should set the stock return default to 10% (nominal) rather than 7% (real).

I would also either not include the landlord equity in the comparison (especially if owner-occupied) or else subtract the ~10% in closing costs/commissions, as well as some sort of estimate for capital gains/depreciation recapture. That net worth number is (perhaps by necessity) simplistic, but your assumptions are also ignoring some of the costs of actually accessing the equity.

-W

Thanks for the feedback, Walt!

Good points on both nominal vs. real and the costs involved in accessing equity in a property. I'll modify/tweak some probably later tonight.

For depreciation recapture - that would apply if the owner had previously included a depreciation offset on taxes, correct? I'm not sure if there would be an easy way for me to capture this (let me know if I'm missing something, though).

Writing out my plan for dealing with capital gains here in case my methodology needs revising:
Non-owner-occupied:
[Home Value] - [Purchase Price] = [Gains]

If owned for less than one year, tax [Gains] at 25%, else tax at 15%
(And if accounting for capital gains here, I should also do the same for the Stock Lord scenario)

Owner-occupied:
[Market rate for owner-occupied unit]/[Monthly Rent (all units)] = [Owner-Occupied%]  (not perfect, but an easy approximation)

(1 - [Owner-Occupied%]) * [Gains] = the gains on the portion of the property that is strictly investment/rented out. This portion will be treated like the non-owner-occupied scenario, where gains are taxed at 25% if held less than a year, else 15%

[Owner-Occupied%] * [Gains] = the gains on the portion of the property that is strictly residential / owner-occupied. This portion will be treated like the sale of a single family house, where up to $250k for a single person, or $500k for a married couple, can be realized as pure profit. I could hard-code this in and have a check box for married or not, or just have another input value for amount excluded from capital gains.



waltworks

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #3 on: February 28, 2017, 09:45:47 AM »
The depreciation issue is going to be nearly impossible to model without asking for a ton of information (some of it speculative) from the user. So I guess just ignore that and assume the depreciation is a net zero effect (not really true, c'est la vie).

The taxes issue comes into play with the stocks too, of course. Were the investments in tax advantaged accounts of some kind to begin with? Is the AGI of the stock investor low enough to not pay capital gains if they want to sell stock? Etc.

Are you knocking ~10% off of the equity portion for closing/fees/commissions (ie, modeling what you'd actually get if you wanted to access the equity) as well?

Hard to model something like this accurately, really.

Felicity

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #4 on: February 28, 2017, 10:27:29 AM »
Are you knocking ~10% off of the equity portion for closing/fees/commissions (ie, modeling what you'd actually get if you wanted to access the equity) as well?

Not currently - but definitely planning on adding that in later tonight. That's a quick fix. :)

The taxes issue comes into play with the stocks too, of course. Were the investments in tax advantaged accounts of some kind to begin with? Is the AGI of the stock investor low enough to not pay capital gains if they want to sell stock? Etc.

Hmmm, true...now I'm thinking of possibly just not including capital gains taxes - as they would apply to both stocks and profit from selling real estate, and even if I include it, there would be a host of other considerations to make it truly accurate (complicating the model and perhaps making people more confused/overwhelmed). And of course there's always dividends (qualified and otherwise) that we haven't even started getting into...

It might be best to just make notes at the bottom of the page with respect to what the model doesn't do, with resources for people to read up more on (how to invest in tax-advantaged accounts for example), and of course a big ol' disclaimer to speak to a tax expert.

Hard to model something like this accurately, really.

Too true - but fun to try! :D

It's not too hard to get a back-of-the-napkin guestimate, thankfully. :)

arebelspy

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #5 on: March 04, 2017, 02:38:37 AM »
Neat, I love it!

Shows a 1% property barely beats a stock market investor.  Probably not quite worth the work, except for diversity.

If you can do better than 1%, it can definitely be worth it. Worse, it isn't.  Makes sense why that's the break-even.

Would be cool if it generated a unique URL for each custom scenario to link to.

(You definitely need to change 7% to 10%.  And add an inflation option. But do the first, regardless of the second.)
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Blindsquirrel

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #6 on: March 05, 2017, 09:37:12 AM »
   Thanks a lot, I really like it a ton. Played with numbers and definitely going to get rid of the dogs amongst our rentals. Those puppies are going to be sold this year. Thanks for the visual to get me off my butt and rationalize the portfolio!

andysandp

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #7 on: March 06, 2017, 04:44:47 AM »
Great Calculator!   

For Maintenance, Real Estate Tax, Insurance, Management, there should be a % that it goes up every year due to Inflation.

Also I think putting actual numbers instead of % for Expenses like Insurance,  Repairs, etc.  would be better.  How about HOA Category?

Here is another good Calculator which you can input actual numbers, and input % for Inflation for each category.  The calculator doesn't reinvest Cash Flow however.

http://www.calculator.net/rental-property-calculator.html
« Last Edit: March 06, 2017, 07:53:38 AM by andysandp »

Felicity

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #8 on: March 07, 2017, 09:38:29 AM »
Neat, I love it!

Shows a 1% property barely beats a stock market investor.  Probably not quite worth the work, except for diversity.

If you can do better than 1%, it can definitely be worth it. Worse, it isn't.  Makes sense why that's the break-even.

Would be cool if it generated a unique URL for each custom scenario to link to.

(You definitely need to change 7% to 10%.  And add an inflation option. But do the first, regardless of the second.)

Thanks much for the feedback!

We're definitely wanting to generate a unique ID eventually...just need to figure out exactly how we want to do that and implement it. It'd make a ton of sense for a couple or business partners wanting to share results for a specific property.

Also noted on the +1 to stocks %  - I'm recovering from a cold and might have it in me now to finally make the 1 minute change tonight.

For adding an inflation option, how would you want that used? Showing net worth at the end of X years in today's dollars?

   Thanks a lot, I really like it a ton. Played with numbers and definitely going to get rid of the dogs amongst our rentals. Those puppies are going to be sold this year. Thanks for the visual to get me off my butt and rationalize the portfolio!

Ah, so glad you liked it! Haha, and I'm both very amused and slightly perturbed by the dog analogy. Our dog is definitely financially underperforming, but he's very fluffy.

Great Calculator!   

For Maintenance, Real Estate Tax, Insurance, Management, there should be a % that it goes up every year due to Inflation.

So those are all currently going up based on property value and rents (which can be modified with [property growth %] and [rent growth %]) - Does that seem like a logical way of doing it (equations shown in assumptions/methodology at bottom of page)? This could definitely be made clearer, possibly with more mouse-over text, etc.

Quote
Also I think putting actual numbers instead of % for Expenses like Insurance,  Repairs, etc.  would be better.  How about HOA Category?
Hmmm - I can see the appeal of that, but it makes it easier to have a general assessment based on % to start with, as we want to have the main calculator as simplified as possible, and a $1M house is going to have very different maintenance needed from a $100k house. Would it help if there was text to the side showing dollar amount, like with the down payment and closing costs fields? I think more explanation/detail like that in general would add to the calculator.

Ah, yes, HOA! We were thinking of having an "all other expenses" field that might say something like "e.g. HOA fees", so there can be a catch-all field.

Quote
Here is another good Calculator which you can input actual numbers, and input % for Inflation for each category.  The calculator doesn't reinvest Cash Flow however.

http://www.calculator.net/rental-property-calculator.html

Ah, yes, we saw this when we were making our calculator. Good general calculator for considering a rental property. :)

Felicity

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #9 on: March 07, 2017, 05:51:01 PM »
Made a few changes - it is now possible to share your particular graph/model/outcome with others + changed the stock growth default to 10%

The stock growth % definitely made a difference to the outcomes/graph. I'm starting to see why the 2% rule is a thing.

Still need to add some more clarity to inputs.

andysandp

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #10 on: March 08, 2017, 11:13:27 AM »
Looks good!

I still think HOA and repair increases should be separate from Rental % growth and Property % growth.

HOA and repair increases usually go up with inflation, but you might predict the Rental % growth and Property % growth to go up more then Inflation.

For Example let's say you predict the Rent or Property growth to be  5%.  The HOA and repairs probably will stay at 3%. 

« Last Edit: March 08, 2017, 04:16:19 PM by andysandp »

Felicity

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #11 on: March 09, 2017, 08:53:19 AM »
Looks good!

I still think HOA and repair increases should be separate from Rental % growth and Property % growth.

HOA and repair increases usually go up with inflation, but you might predict the Rental % growth and Property % growth to go up more then Inflation.

For Example let's say you predict the Rent or Property growth to be  5%.  The HOA and repairs probably will stay at 3%.

Ah, gotcha.

Hmm...I may need to reevaluate the model!

andysandp

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #12 on: April 11, 2017, 06:38:17 AM »
Are you still working on this calculator?  I can't seem to access it?

Thanks!

Blindsquirrel

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #13 on: April 13, 2017, 07:24:41 PM »
 One problem is the compounding of RE gains, in many markets it is tough to find new deals that offer such good returns as the initial one. In 2009 deals that had a killer return rate were a dime a dozen and now it is much harder to do.

andysandp

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #14 on: April 14, 2017, 05:47:36 AM »
The Calculator is great, but I'm wondering if you can improve on it.

The calculator invests the Cash Flow into S and P.  The Cash Flow is usually Taxed before you can invest it into the S and P.
Any way you can add Taxes to the Cash Flow before you invest it into the S and P?

I think this will make a big difference into the final numbers when Cash Flow is invested into S and P.

Otherwise this is the best calculator I can find!

Felicity

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #15 on: April 17, 2017, 09:05:52 PM »
Are you still working on this calculator?  I can't seem to access it?

Thanks!

Yes, still working on it. :)

Is your browser updated? Other than that, deleting cookies if you've visited the site before might fix it (we need to set it up so the site automatically detects and pulls the latest version so that's not an issue).

If neither of those things work, please let me know, and let me know what browser you're using. :D

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Re: I Made a Calculator for Real Estate Newbs - Feedback Please? :D
« Reply #16 on: April 17, 2017, 09:16:44 PM »
One problem is the compounding of RE gains, in many markets it is tough to find new deals that offer such good returns as the initial one. In 2009 deals that had a killer return rate were a dime a dozen and now it is much harder to do.

Ah, meaning it might make sense to provide a less idealized example pre-populated? Or am I missing something as I am definitely a newb myself?

Haha, I know I for sure could not get that kind of return in my area.

The Calculator is great, but I'm wondering if you can improve on it.

The calculator invests the Cash Flow into S and P.  The Cash Flow is usually Taxed before you can invest it into the S and P.
Any way you can add Taxes to the Cash Flow before you invest it into the S and P?

I think this will make a big difference into the final numbers when Cash Flow is invested into S and P.

Otherwise this is the best calculator I can find!

Ah, looks like it ended up working for you after all! The site may have been temporarily down or something -- no major downtime recently, but a few minutes here or there is not uncommon.

Always looking for ways to improve it :D

Ah, yes! Accounting for taxes is something we haven't fully looked into but have definitely been thinking about since waltworks brought the subject up...there would also be taxes for capital gains in the purely "stocklord" case, plus potentially mortgage interest tax deductions...I'll see if I can come up with a simplified model and post it here.

Thanks for trying it out and for the kind words. :)