The Only Spreadsheet to Evaluate a Real Estate Investment
There are too many factors to account for when evaluating a potential investment that you could spend months doing analysis.
I’ve written about spreadsheets I’ve built in other aspects of my life, but this is the spreadsheet that has saved me the most time and made me the most money. Creating this Real Estate Investment Spreadsheet makes the initial evaluation of a deal only 5 minutes and gives me conviction on whether or not I should learn more about the property. As someone who does not speculate on market appreciation, this spreadsheet objectively tells me the cash on cash yield (the only thing that matters to me), that I will make on my investment barring any macroeconomic swings.
If you’re interested in using a version of this spreadsheet, I built the calculator here.
Creating a real estate deal investment calculator spreadsheet can be a helpful tool for evaluating the potential profitability of a real estate investment. Here is a step-by-step guide on how to build your own:
- Open a new spreadsheet and create a list of the inputs that you will need to make your calculations. These might include the purchase price of the property, the mortgage amount, the amortization period (the length of time it will take to pay off the mortgage), the rental income from the property, and any other expenses related to the property (such as taxes, insurance, and maintenance).
- Create separate columns in your spreadsheet for each of these inputs.
- Next, you will need to create formulas to calculate your annual Net Operating Income (NOI). To calculate NOI, you will need your rental income less all of the expenses associated with the property including but not limited to property tax, insurance, utilities, etc.
- To calculate cash flow to equity investors, you will need your NOI less all of your mortgage payments, including your interest payments and your principal payments. This is the money, you as the investor, get in your bank account.
- Once you have calculated these two values, you can use them to determine your cap rate and cash on cash yield. To calculate the cap rate, you will need to divide the NOI by the purchase price of the property. To calculate the cash on cash yield, you will need to divide the cash flow to equity investors by the total amount of money invested in the property excluding your mortgage.
- For me, anything below a 8% cash yield is not worth it since I could get a similar yield in the stock market for way less work.
By following these steps and using this calculator, I’ve passed on countless real-estate deals in 5 minutes that I otherwise would have spent way more time analyzing.