BRRRR Analysis Question

[Mark J.]

@Mark 

I'm typically a buy-and-hold investor and purchase foreclosure properties, renovate, and rent (BRRRR strategy). Generally, there's a significant initial renovation (capital improvement) which on my analysis spreadsheet I've essentially been calculating / rolling into the total acquisition cost of the property. I've seen other analysis spreadsheets that account for the purchase price and the reno/capital improvement separately (perhaps for tax/accounting purposes??).

However, if I separate the purchase price and reno/capital improvement, the cash flow analysis is negative for the first few years (since capital improvements are charged against annual cash flow). But if I combine the initial acquisition cost (property + closing costs) plus the initial reno/capital improvement into one number (purchase price), the cash flow analysis is positive, seems clearer to me, and that's what I've been basing my purchasing decisions on.

Which way is the best method for getting most accurate picture when analyzing a property that's likely a hold for at least five years?

Many thanks in advance!