Hello all!
Have been a big fan of the podcast over the past month, and have been spending time over the past ~3 months learning the tricks of the trade. A bit about myself - I have a background in finance and accounting, and used to be a professional investor, albeit buying entire companies as part of a large investment group, rather than homes as part of a one-man enterprise! I'm a long-time numbers guy and borderline-obsessive researcher, both of which are skills that I think will form a nice foundation for RE investing. I'll be investing in North Carolina, specifically the Winston-Salem area (I currently split time between Winston-Salem and Chapel Hill).
I'll be investing all-cash to start with, utilizing leverage where it makes sense to take money off the table once I have stable renters. In terms of deal sourcing, I have a few friends who are realtors, but will need to get set up with a realtor who is also an investor to really get things rolling. I'm already active on Craigslist, plan to go to meetups, and will be driving and dialing for dollars aggressively as time permits. I think it's pretty clear that you can't troll Zillow and find deals where the numbers make sense - need to get out in front of proprietary opportunities that aren't yet on the market. It's going to take some fortitude to write the first check, but that's all the more reason to get a great first deal.
On that front, as a numbers guy, I've gone ahead and built a fairly simple financial model to quickly analyze the numbers using some high-level assumptions. I've based it on the 50% rule (50% NOI margin off of Gross rental income), but I want to have you guys take a look at the model to see if the P&L is flowing properly. Specifically, I am told that 70% of the purchase price can be depreciated over 27.5 years (this simply based on Googling around), and have built this functionality in. Likewise, rehab capex can be depreciated over 15 years - is all of this correct? As such, my P&L flows as NOI, less basis depreciation, less improvements depreciation, less interest expense to get to pre-tax income...then I apply a tax rate to get to Net Income and add-back depreciation and subtract out my principal loan repayments as only interest is tax deductible. Is this the right way to look at the financials? I've attached some images below and would appreciate any feedback on the model. Also, obviously am happy to share the Excel file with anyone who would like to use it.
First image is the model and returns, second image is the amortization schedule (hopefully it's easy to see). If someone could also have a look at the exit math too, that'd be helpful. Currently assuming that any appreciation is taxed at capital gains (20%) and is lumped into the cash flow for that year.
Thanks all! Look forward to meeting some of you / learning more!
