Debt Pay Down Analysis

[Ross Hayes]

Hello

I could be missing the obvious, but I cannot seem to find much information on calculating the return and benefits of debt pay down on a rental property.

How do you assess the benefits of improved equity or increased balance sheet performance through the paying down of the mortgage on a property?

For example, if the property cash flows, you will see some type of cash on cash return.  That is great.  However, how does one track and analyze the benefits to their balance sheet by the monthly rent paying down the mortgage over time, giving you more equity and a better balance sheet, using the tenant and bank's money?

Do you look at the annual average principal amount of the loan paid down over time?

Thank you

[Glen Wiley]

I create a spreadsheet that calculates principle pay down using the built in functions for principle and interest (ipmt, ppmt). The sheet include the other vectors as well over a 30 year period:

1. Loan balance by month for 30 years

2. Appreciation by month for 30 years

3. Total expenses (include formulaic maintenance and vacancy rates)

4. Rent, month by month with annual increases based on projections

This lets me look at any given year in the future and quickly ascertain the impact of a cash out refinance for multiple houses in the portfolio. This helps me track net worth. This helps me project probable total cash flow in a future year which helps me understand how to plan.