ChatGPT can calculate ROI and cash flow

[Christopher Stevens]

Check this out! I did a test and input this data into ChatGPT: 

What is the ROI and monthly cash flow on a property purchased for $135,000?

- Property taxes and insurance costs are $101 per month
- Down payment is 30% on a 30-year fixed rate of 5.5% interest
- Monthly rent is $995 monthly
- Closing costs are $5,500

If you have this information when considering purchasing a property, here's what you'll get if you type this into ChatGPT:

"To calculate the return on investment (ROI) and monthly cash flow for the property purchased, we need to consider several factors:

1. Mortgage Payment
2. Property taxes and insurance costs
3. Monthly rental income

First, let's calculate the mortgage payment:

1. Down payment: 30% of $135,000 = $40,500
2. Loan amount: $135,000 - $40,500 = $94,500

Using a mortgage calculator, we can calculate the monthly mortgage payment:

- Principal and Interest:

- Loan amount: $94,500
- Interest rate: 5.5%
- Loan term: 30 years

Using the formula for a fixed-rate mortgage, the monthly payment is approximately $535.89.

Next, let's calculate the monthly cash flow:

- Monthly rental income: $995
- Property taxes and insurance costs: $101

Monthly Cash Flow = Rental Income - (Mortgage Payment + Property Taxes & Insurance Costs)
= $995 - ($535.89 + $101)
= $995 - $636.89
≈ $358.11

Now, let's calculate the ROI:

ROI = (Annual Net Income / Total Investment) * 100

Annual Net Income = Monthly Cash Flow * 12
≈ $358.11 * 12
≈ $4,297.32

Total Investment = Purchase Price + Closing Costs
= $135,000 + $5,500
= $140,500

ROI = ($4,297.32 / $140,500) * 100
≈ 3.06%

So, the monthly cash flow on the property is approximately $358.11, and the ROI is approximately 3.06%."

A cash flow of $358 and ROI of 3.06% in year one might not be all that appealing. However, the other benefits of owning real estate are:

- Taxes (depreciation/potential accelerated depreciation)

- Appreciation (this is NOT always guaranteed, but over time, you will have appreciation)

- Building equity (in this scenario, as long as rent is paid, you'll build about $140 monthly in equity)

Please note some expenses that are missing from this are: 

- Management fees (8-10% on average, if applicable)

- Estimated vacancy costs (2-3%)

- Estimated repairs (5%)

Disclaimer: I am a real estate investor and own four rental properties. This is a quick and easy way to get a general idea of potential cash flow and your ROI on a property using ChatGPT. I'm not associated with or vouch for the accuracy of information provided by ChatGPT. This is for general purposes only and not legal or investing advice. Always double-check the data and calculations from any source.

Advice: Information is good, but taking action is the best way to learn. Every action you take is a learning experience that will help you learn and grow. Not taking action means you'll never grow or learn. You will make mistakes, but you'll learn the most from mistakes - this is how to improve your life. "If you don't fail, you're not even trying." Denzel Washington.

I hope this information is helpful. Thank you for reading.

[Ian Ippolito]

That's very impressive looking.

One potential word of caution: I asked ChatGPT to compute the IRR of a fund based on certain criteria (which is normally alot of work), and it spit it out instantly with a ton of analysis and which all looked and sounded super impressive. And then I double checked the math at the heart of it and found it was completely wrong. I then had it do 3-4 other IRR calculations and all were incorrect as well.

I'm not saying that's the case here (as I didn't look)...and hopefully it isn't. But definitely something to watch out for.