Author Topic: Underwater vs. cash flow negative calculator  (Read 4063 times)

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28104
  • Age: -999
  • Location: Seattle, WA
Underwater vs. cash flow negative calculator
« on: October 29, 2014, 12:20:34 PM »
Does anyone know of an online calculator that will calculate if one ought to bite the bullet and sell an underwater property, taking a loss immediately, or bleed slowly over time?

I'm picturing something like the NYT Buy vs. Rent Calculator, but for sell (at a loss) vs. rent (at a loss).

Ideally one could put in various inputs (expected appreciation, rent increases, cost of mortgage, maintenance, vacancy, the rate of return on the funds that aren't used to pay out of pocket to sell, etc.) and see if they'd be better off selling right away or renting at a loss for X years or whatever.

I suppose a spreadsheet could work as well, if one had all the inputs figured out (the above was just off the top of my head). 

Thoughts?  Links?

Anyone run across anything like this?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Poorman

  • Bristles
  • ***
  • Posts: 260
  • Age: 41
  • Location: Orange County, CA
Re: Underwater vs. cash flow negative calculator
« Reply #1 on: October 29, 2014, 02:18:47 PM »
I would suggest using a discounted cashflow calculator and running two scenarios, one for the slow bleed and one for the lump sum.  Choose the option with the highest present value.

http://www.calculatorsoup.com/calculators/financial/present-value-cash-flows-calculator.php
« Last Edit: October 29, 2014, 02:21:02 PM by Poorman »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28104
  • Age: -999
  • Location: Seattle, WA
Re: Underwater vs. cash flow negative calculator
« Reply #2 on: November 01, 2014, 03:26:35 PM »
No other ideas from anyone?  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3715
  • Age: 41
  • Location: USA
Re: Underwater vs. cash flow negative calculator
« Reply #3 on: November 01, 2014, 04:52:26 PM »
I.P. Daley has a little "breakeven" calculator on his website for ETFs on cell phones. It will not do what you are looking for, but it would seem like something that's easy to make for the tech saavy crowd. I think he said a reader made it for him. Maybe check that out and reach out to him to see who made it?? Longshot, but you are looking for ideas right?

frugally

  • Stubble
  • **
  • Posts: 135
    • Welcome to the Woods
Re: Underwater vs. cash flow negative calculator
« Reply #4 on: November 02, 2014, 08:23:23 AM »
Well, thinking this through in laymen terms...you'll want:

  • Home Value
  • Mortgage Amount Remaining
  • Years Left on Mortgage
  • Cost to Sell Home
  • Home Appreciation Rate
  • Gross Rents (annual)
  • Expenses (annual) (Not including principal + interest on loan)
  • Investment RoR
  • Inflation Rate

Where the output would be a graph over time (x) with the following formula:

Sell Home Now = (#1-#2-#4) * (1 + #8) ^ x
Rent At Loss = Sum of total opportunity lost on cashflow for through year x + cash out (potentially negative) at sale at year x
WHERE
Cash out at sale = Appreciated home value - remaining mortgage amount - inflated cost to sell
Sum of total opportunity lost on cashflow = Summation(x=1, MAX(x)) sum of total opportunity lost on cashflow at year x
Sum of total opportunity lost on cashflow at year x = Sum of (negative) cashflow at year x * (1 + #8) ^ (MAX(x) - x)
Sum of (negative) cashflow at year x = Inflated gross rent at year x - inflated gross expenses at year x - mortgage payment

Then you can just look at the graph and see how long you'd have to keep the house to make it worth it (if ever)

Leaving some of these as generic as I just don't want to write it all out right now.  This seem correct/incorrect?

gimp

  • Handlebar Stache
  • *****
  • Posts: 2348
Re: Underwater vs. cash flow negative calculator
« Reply #5 on: November 03, 2014, 04:10:06 PM »
Pay me and I'll write one for you. You can write it off as a business expense. :)

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28104
  • Age: -999
  • Location: Seattle, WA
Re: Underwater vs. cash flow negative calculator
« Reply #6 on: November 03, 2014, 05:25:20 PM »
Pay me and I'll write one for you. You can write it off as a business expense. :)

Not the idea I was looking for, but I appreciate the thoughts from everyone so far.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

gimp

  • Handlebar Stache
  • *****
  • Posts: 2348
Re: Underwater vs. cash flow negative calculator
« Reply #7 on: November 03, 2014, 06:59:37 PM »
Pay me and I'll write one for you. You can write it off as a business expense. :)

Not the idea I was looking for, but I appreciate the thoughts from everyone so far.  :)

Darn. Could I instead interest you in buying my book on investment strategy using rocks?

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28104
  • Age: -999
  • Location: Seattle, WA
Re: Underwater vs. cash flow negative calculator
« Reply #8 on: November 03, 2014, 08:21:13 PM »
Pay me and I'll write one for you. You can write it off as a business expense. :)

Not the idea I was looking for, but I appreciate the thoughts from everyone so far.  :)

Darn. Could I instead interest you in buying my book on investment strategy using rocks?

Sounds like a good Kickstarter project.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28104
  • Age: -999
  • Location: Seattle, WA
Re: Underwater vs. cash flow negative calculator
« Reply #9 on: March 17, 2015, 12:19:52 PM »
Bump.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 1919
  • Age: 40
  • Location: Pueblo, CO
Re: Underwater vs. cash flow negative calculator
« Reply #10 on: March 17, 2015, 08:00:31 PM »
I typically consider myself to be a math guy. However, I continue to fall short by comparison of the many others on this forum willing to create spread sheets and math to solve problems. Maybe it is the large amount of engineers.

I am going to fall short again and not offer any math. However, I am going to offer two theoretical nuggets.

1) Humans are loss averse. Your gut is going to tell you to hang onto it as long as possible to avoid the loss. Try to be aware of this cognitive bias when making your decision. If you are at a casino and down $100, the magic number is always to break even before you leave. Many of us would make many irrational decisions to try to break even before we leave the casino.

2) If your comparison involves bleeding over time, you will have to plug in theoretical numbers into the calculator that may or may not exist. I personally believe that calculators are more helpful for problems with real numbers.

3) I have shared this story once before, but Michael Jordan purchased the Bobcats when it was losing 20 million a year. He got a killer deal because it was losing money and humans are loss averse. He saw the bigger picture and had a hunch that the team would eventually make money over time. He recently beat Magic Johnson to become the first Billionaire athlete and the biggest reason to put him over the hump was his purchase of the Bobcats.