I'll do my best to answer your questions, but I'm going to skip the ones where you specifically spoke about the house. This was just a sample and not real, I picked a random house and plugged numbers in. I was just trying to show the spreadsheet’s functionality. I apologize since you took the time to speak to that. The RCD and flipping chart are information for me, please ignore.
Originally posted by @Arpan Patel:
Okay there is a lot to cover so I will break it down sheet by sheet.
Inputs
1) I don't know why you have a vacancy rate for a flip
There isn't, this is 0 if it is a flip. If holding period is < 12 all rental inputs become 0 in spreadsheet. I know this is going to look like giberish on here, but for example:
Annual Expenses
=IF(C6<12,ROUND(SUM(C13:C16)*C$6+SUM(C20:C23)+C28,0),ROUND(SUM(C7:C10,C13:C16)*C$6,0))
Where C6 is holding period. C13-C16 are Insurance/Tax/Mortgage/Holding Costs (flips); C20-C23 are Purchase Costs; C7-C10 are Rental Variables (vacancy, maintenance, etc).
Hopefully this clears up the confusion.
2) Insurance will be much higher for a flip because you are getting a builders risk insurance, not a normal home owners
3) Why are there 0 holding costs? Wouldn't you have at least the mortgage and insurance even if the tenant is paying for utilities?
I'm slightly confused on this point. PITI is all factored in (Monthly Fixed costs section)
4) What is the difference between scenario 1 and 2? Just the rent number?
5) Why would the value be the same for the ARV between scenario 1 and 2 even though in scenario 1 you are dong about half in repairs?
6) Closing costs are going to be more than just the realtor fees. Remember there are prorated taxes and title and many even a lawyer or a concession
Thank you, I have this factored in on the selling side but not the buying side.
7) Why is there is a difference between 3 and 4 when both have the same repair number? Why is one scenario worth 20k more than the other when you are doing the same thing in both scenarios?
8) Does adding 25k in rehab really yield you another 45k in equity between 4 and 5?
9) Why is the interest rate on 3 different from 1 and 2? different lender?
10) Why is it the same rate for 4 and 5 and 1 and 2? 4 and 5 are flips so are you saying the lender you picked will do both models at the same rate? That doesn't sound right to me
11) How are you generating monthly income from a flip in scenarios 4 and 5? How can you lease a place that you are remodeling to flip?
These are 0 when holding period is less than 12, due to formulas.
12) Why do you have 30 year loans for you analysis for cash flow and have 10 year amortization for your actual amortization schedule?
This shows what your investment looks like if you were to sell you house in 10 years, not a loan of 10 years.
13) Why do you have realtor fees at 7% and in your analysis all closing costs are 6%
One is for purchase and one is for selling (I believe the costs are different so I thought it would be necessary to have two different numbers)
Rehab Analysis:
1) You only factored one month for your all your holding costs. That should be 6 times that number for a flip.
Holding costs on the Rehab tab are a function of the output tab and are informative only, they are on the outputs tab in the Annual Expense row (you will see it takes into account how many months held).
2) By your math you are showing a 41k loss on the house
This is confusing, I should delete that section, it’s not used. Only the output tab is used for final profit analysis.
3) Hard to evaluate scope of work with no pictures but if you aren't doing any framing then why are you doing so much duct work? You typically need to frame the vents in.
4) Hardwood costs seems low but maybe you are only doing a small rooms worth
5) Counter top installation is a bit off in my guess but maybe you have a small easy kitchen
6) Appliance installation is usually carried out by the vendor you bought it from and it is not usually 1000
7) Door knobs seems a bit low unless you are only doing a few
8) Backsplach material seems low as well
Output is visually fine but I have many questions about inputs and if they are off then your outputs will be off as wel
1) IRR looks suspect as well. If you are getting a a great debt coverage ratio then why is your IRR less than your cap rate? Something if very off
The cap rate is based off of the original purchase price of the house, which is very low in this case since it’s a distressed property. Should this be based off the ARV of the home? The IRR is the basic IRR excel function and looking at what goes into the cash flow formulas I don’t see any red flags, so maybe this is where the issue is coming from? I appreciate the input.
Why are you running your amort schedule on 28.3 years? That was not indicated anywhere else on your spreadsheet. Also I think your Amort formulas need to be checked. Not sure I like the function to have a floor function in it. Plus you are going negative at the end of the 30 years and that wouldn't make sense for a 30 year loan
This is not for the mortgage payment calculate, that uses excels basic PMT function. This is for the projection portion of the spreadsheet. The mortgage payment needed to be indexed, I’ve updated that column :). I’m not sure what you mean by a floor? I don’t see a minimum anywhere.
No idea what RCD is for
I don't understand the purpose of the flipping chart.
Thank you for your input!
