ROI, IRR, and other metrics -- AFTER purchase

[Drew Purvis]

Hello all,

I am stuck. I have been searching for information on how other borrowers calculate the performance of their portfolio AFTER they have acquired properties. In other words, the real world, actual performance of their investments. I feel like I understand what ROI and IRR are, but the actual math seems a bit more complex than the examples I have found.

For example:

Lets assume I buy a BRRR property with a total initial investment of 35k (purchase and rehab) The rent is $850 a month, but the property manager collects 10% off the top before I see a dime(in some months, maintenance fees are also deducted). So, the monthly inflow is $725-$765. Now after holding the property for 6 months, I refinanced with a bank. Appraisal came in lower than expected at 35k (70% LTV) and I pulled out about 22k after fees and pre-paids. How does this factor into the IRR calculation? Do you just change the initial investment to 13k? (35k- 22k)

Regarding cash inflows, do you subtract ALL fees/payments? For example $850/month rent. Subtract Mgmt fees, Maintenance, PITI you end up with about $400/month in cashflow. Do you use $400 as your cash inflows? Or would you also make assumptions for vacancy and CapEx?

Help!

[Adam Detig]

Here is one humble method to calculate real time IRR. Seeing as how you are rehabbing this property, there will be a lot of expenses in a short time (monthly), with a large cast back when you refinance. I suggest breaking it down quarterly and take your calculated NOI and subtract additional expenses (rehab costs, etc) and add additional income (the income you received from the loan payout, etc). Each quarter, take the sum and use that for the IRR.

Example of this:

Month 1: -$35K purchase

Month 2: +$725 NOI

Month 3: +$725 NOI

Month 4: +$22k cashout refinance and +$725.

Month 5: +$725 NOI

I broke this down monthly for simplicity, but take the sums of each month (or quarter if you want) to use in the IRR calculation.

PM me if I need to explain this further.