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/u/TrapHouseinSMemphis
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Hello all,
I've been looking into real estate investing as my friend keeps talking to me about it as "passive income". I've been of the opinion that no income is truly passive and that he's bought into some hype. I try to be very cautious with things like that. I am an accountant, so if the numbers don't make sense to me, I don't bother with it.
Admittedly, I never looked into the numbers on real estate. I've made amort tables for work and personal budgeting, but to value a potential investment, I've never done it as, liek I said, my extra money typically goes into my retirement accounts.
I decided to make a spreadsheet from scratch this evening. I took historical real estate data for home appreciation in my zip code for the past 25 years and came to a 3.8 average annual return. I plugged in ALL the numbers (I promise you, all of them), and I've tried to cut numbers in half to be cautious, and over the long-term you still make a gob of money.
I do see a lot of simple advice about NOI, and most people here calculate it as revenues - expenses, and I do understand why, but I feel like that undersells this. Equity, Home appreciation, and rental income averages should all be taken into just as maintenance, mortgage, vacancy, property manager, etc. should be all taken out to get a net number. If equity is not taken as profit, then the only expense to be recognized from your mortgage should be interest. Principal should be eliminated entirely in that case.
Anyway, my question is this -- Is there a downside to valuing real estate this way? The way I see it, if you're carrying a home for 2-3 decades, you should account for all that extra you might get. Sure, test each year to see if NRV has gone up/down, but that's still money in the bank from a net worth's perspective. Should I intentionally put a cap things around 10 years for caution's sake? Or am I missing something fundamental?
Right now some key annual numbers I have are:
Home Appreciation (2.5%) - Cut this down as maybe a rental wouldn't appreciate as quickly?
Rent Increase (1%)
Prop Tax/Maint/Insurance Inflation (2%)
Vacancy Rate (5%)
Maintenance (1%)
Prop Manager (12%)
submitted by /u/TrapHouseinSMemphis
[link] [comments]
[LOUISIANA] I'm not understanding correctly -- Equity included in NOI?
Continue reading...
I've been looking into real estate investing as my friend keeps talking to me about it as "passive income". I've been of the opinion that no income is truly passive and that he's bought into some hype. I try to be very cautious with things like that. I am an accountant, so if the numbers don't make sense to me, I don't bother with it.
Admittedly, I never looked into the numbers on real estate. I've made amort tables for work and personal budgeting, but to value a potential investment, I've never done it as, liek I said, my extra money typically goes into my retirement accounts.
I decided to make a spreadsheet from scratch this evening. I took historical real estate data for home appreciation in my zip code for the past 25 years and came to a 3.8 average annual return. I plugged in ALL the numbers (I promise you, all of them), and I've tried to cut numbers in half to be cautious, and over the long-term you still make a gob of money.
I do see a lot of simple advice about NOI, and most people here calculate it as revenues - expenses, and I do understand why, but I feel like that undersells this. Equity, Home appreciation, and rental income averages should all be taken into just as maintenance, mortgage, vacancy, property manager, etc. should be all taken out to get a net number. If equity is not taken as profit, then the only expense to be recognized from your mortgage should be interest. Principal should be eliminated entirely in that case.
Anyway, my question is this -- Is there a downside to valuing real estate this way? The way I see it, if you're carrying a home for 2-3 decades, you should account for all that extra you might get. Sure, test each year to see if NRV has gone up/down, but that's still money in the bank from a net worth's perspective. Should I intentionally put a cap things around 10 years for caution's sake? Or am I missing something fundamental?
Right now some key annual numbers I have are:
Home Appreciation (2.5%) - Cut this down as maybe a rental wouldn't appreciate as quickly?
Rent Increase (1%)
Prop Tax/Maint/Insurance Inflation (2%)
Vacancy Rate (5%)
Maintenance (1%)
Prop Manager (12%)
submitted by /u/TrapHouseinSMemphis
[link] [comments]
[LOUISIANA] I'm not understanding correctly -- Equity included in NOI?
Continue reading...