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Investment real estate profitability analysis

Investment real estate profitability analysis

One of the most important things every investor needs to do before purchasing a property is a profitability analysis. At first glance, many deals seem great, but upon further review turn out to be anything but ideal. You just can’t tell for sure until you do the numbers. That’s where this spreadsheet might come in handy.

If you have Microsoft Excel (or OpenOffice), this financial spreadsheet is a good example of the kind of analysis you can perform. It’s particularly useful when scrutinizing deals as you can quickly determine if a property is worth further research by plugging in a few numbers. Simply enter the rents, expenses and financing and it figures out how profitable the investment will be.

Of course, this is a very simplified spreadsheet. It does not account for major repairs, appreciation or tax benefits. However, it should give you a realistic snapshot of an investments potential.

I like to pay particular attention to both return on investment (ROI), which considers real-world financing scenarios, and the always popular cap rate.  The percentage ROI return tells you how much money you will get back in a given year for the money you put it, while the cap rate is the yearly return assuming the property was purchased with cash.

You can download this spreadsheet for yourself by clicking on this link: Rental Property Analysis. Hope it comes in handy.  Please notee that this spreadsheet is an example only. It is notIf you have any questions or comments of the spreadsheet, please contact me.

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Matt Kastner

Matt Kastner is an Investment Real Estate Consultant at St. Louis Real Estate Society in St. Louis, Missouri. He is also develops properties on the side through Threshold Properties. When he isn’t representing investors in the purchase or sale of multifamily properties, rehabs, foreclosures and other income producing properties, he is often taking on rehab projects himself. He lives in South St. Louis and has been in the real estate business since 2004.

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2 thoughts on “Investment real estate profitability analysis”

  • Andrew

    February 9, 2010 at 4:55 pm

    What’s a particular cap rate or cash on cash return to aim for in a good property?

    a

    Reply
    • Matt Kastner

      February 9, 2010 at 6:32 pm

      Now that’s a question with a long answer. In the end, it really just depends on the property type and area. For instance, a 12-cap on a 4-family might be considered a good deal in Benton Park, but the same building might need to be a 15-cap in Benton Park West to meet that threshold. Duplexes tend to offer lower-cap rates, but the resale values tend to be higher since a lot of those properties are sold to owner occupants. This trend is even more obvious for single-family houses.

      Reply

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