Real Estate Math 101

 

I often freaked out when i see some newbie ran their number for their couple 1st deals. I was amazed because i really don’t understand half of it.

Tell me if i am lucky or not, but the 1st few deals of my real estate career, I don’t understand a thing about cap rate. I have no idea what is vacancy rate, capital appreciation, 30 year profit projection, cap-ex, etc. I didn’t plot my project into 30 years time frame and analyzed projected return rate nor understand any piece of it. I didn’t factor in appreciation or tax advantage in the calculation. I didn’t have any expert to consult with. I was by myself, scared but determined to follow through. I got ripped of on my loan. I was scared to death when i signed the paper. I don’t even know how much my agent will charge me to lease the house.

But I know two numbers folk. Only two:

I know how much is my EXPENSE are, and i know how much is my INCOME every month. That’s really it. Real estate is a dumb-man game. You don’t have to be smart, or have a math major to figure this out and don’t try to look fancy or complicate for 1st few deals. It is dead simple. The rent comming in minus the expense comming out. If you like what you see then you go for it. If not, move on

Here is how i normally did my number. nothing fancy. Just number comming in – the number comming out. I’m not saying that it’s the best way to do it and later when you have more assets, you have factor in some other aspect of the business to scale up and down but the bottom line is still the cash flow number below. If you can’t get this straight then nothing you do, nothing you learn will work

spreadsheet

And i can’t leave you without the book to read. Check out

http://www.amazon.com/How-Come-That-Idiots-Rich/dp/0307395081

Just to open your mind that the wealthy think very simple, but yet so direct and powerful.

 

 

 

 

 

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