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.  

[Carini Rochester]

Looks wrong. Specifically, the amount invested is wrong, then that wrong amount is used to calculate the ROI, and so gets that answer wrong. The investment is the down payment plus the closing costs: 40,500+5500= 46,000.

ROI = 4297/46000 = 9.3%

GPT doesn't understand the power of leverage?

[David C.]

Quote from @Carini Rochester:

Looks wrong. Specifically, the amount invested is wrong, then that wrong amount is used to calculate the ROI, and so gets that answer wrong. The investment is the down payment plus the closing costs: 40,500+5500= 46,000.

ROI = 4297/46000 = 9.3%

GPT doesn't understand the power of leverage?

After the ROI calculation, ask ChatGPT for Coc and you get 9.3%. Looks like ChatGPT did to it right. ROI is 3.06% and CoC is 9.3%.

[Christopher Stevens]

I should have double-checked the numbers, but the information it created in about 10 seconds is impressive. However, as mentioned in my post, it's essential to check the numbers.

These new AI tools can help make decisions. If we ask the right questions, we might get answers to understand leverage better, too. Much of what we get from these tools is dependent on how/what we ask.  
 

[Bill B.]

Don't forget ROI includes debt pay down so it has to include the principle portion of the loan payment as ROI, I don't see that listed? So I THINK that number is wrong too. Maybe it would be easier for the software if it used monthly interest instead of mortgage payment in the calculation?

[Carlos Ptriawan]

Quote from @Bill B.:

Don't forget ROI includes debt pay down so it has to include the principle portion of the loan payment as ROI, I don't see that listed? So I THINK that number is wrong too. Maybe it would be easier for the software if it used monthly interest instead of mortgage payment in the calculation?

 when the AI able to read deed record they should be able to calculate this more comprehensibly, some software even without AI can already do the above.

[Jonathan Klemm]

Great share @Christopher Stevens!  Love to see what tech is doing and how we are able to LEVERAGE it to help us learn and grow quicker.

Definitely going to check this out for my next Chicago investment!

[Andrew Syrios]

We seem to be living in that brief liminal state where AI is extremely helpful for just about everything including things like this I hadn't even thought of, right before it replaces us completely 

[Bruce Woodruff]

I'm in the 'don't trust AI' camp. It ain't that hard to do the math ourselves......is it?

[Chris Seveney]

Quote from @Bruce Woodruff:

I'm in the 'don't trust AI' camp. It ain't that hard to do the math ourselves......is it?

 haha. I agree. Yes it can do this, so can excel. What it cannot do is look at an asset and model the risk that is involved. Anyone can put numbers on a piece of paper and the moment they do, they are wrong. The key is knowing how accurate they are versus how far off they are. 

That is the key to real estate - understanding the risk and how to mitigate it. ChatGPT cannot do that for you

[Andrew Syrios]

Quote from @Bruce Woodruff:

I'm in the 'don't trust AI' camp. It ain't that hard to do the math ourselves......is it?

I think I'm in the "trust but verify" camp (at least until Skynet becomes sentient and takes over)

It's a good tool, but one that shouldn't be blindly followed. 

[Carlos Ptriawan]

Quote from @Bruce Woodruff:

I'm in the 'don't trust AI' camp. It ain't that hard to do the math ourselves......is it?

 they already replaced google lol , as math is too easy to be replaced. Seriously I was n't think it would be this fast.

[Chris Seveney]

@Carlos Ptriawan

Haha

An excellent spreadsheet has been able to do this for 25 years.

[Carlos Ptriawan]

Quote from @Chris Seveney:

@Carlos Ptriawan

Haha

An excellent spreadsheet has been able to do this for 25 years.

like Lotus 123 ?? :)

haha spreadsheet is so 1984...