Property Analysis Tool

Introduction

The question many investors struggle with is "What property will give me the best return on my investment?" Or, in other words, what house is going to be "the best deal?"

Meridian Pacific Properties has created a straightforward metric tool to answer these important questions by analyzing two measures of return on investment: monthly cash flow (Cash-on-Cash ROI) and Internal Rate of Return (IRR). To achieve these numbers, the following worksheet calculates your input of various data as well as some economic assumptions about the property.

For your convenience, an example representative of an existing property within Meridian Pacific's portfolio is populated below. If you would like to use the worksheet to analyze your own property, click the "Clear Sample Data" box to remove the sample data. Required fields are denoted with a blue background and a corresponding description of each step to help you along the way. As a result, you will discover the Cash-on-Cash ROI and IRR for your property below highlighted in orange.

Start Here

	1. Enter the Market or Appraised Value of the property. If you have an appraisal or if you believe the house is worth more than you bought it for, enter that amount here. If you are not sure, enter the same value as the Purchase Price. The Initial Equity is calculated for you, and it is merely the difference between the Market Value and the Purchase Price.		1

	2. If you are financing your property, enter the Down Payment percentage here. For most investors, it's usually a number between 20 - 30%. Next, enter the Closing Costs & Fees. If you are working with a lender, she can give you a good faith estimate for this line item. The Down Payment + your Closing Costs & Fees = your Total cash investment, which is calculated for you.		2

	3. If you are financing your property, enter your Interest Rate here. (If you are paying cash, enter 0). Typically, interest rates for investment properties are 1 - 2% higher than owner-occupied property. Rates may change daily, and your lender can provide you with today's interest rate. (This analytical tool only assesses 30 yr Fixed financing and does not include other loans with variable rates or amortization periods.) Choose No or Yes depending on if your loan is Interest Only. Your Debt Service Principal & Interest payments, both monthly and annually, are calculated for you.		3

	4. Enter the Monthly Rent, Annual Property Tax and Annual Insurance Premium amounts here. The tax information is available on most county property tax websites. The insurance information is available from the insurance company in which your property is located.		4
	5. In this section, you need to make some assumptions about the property as indicated to the right. Vacancy Rate: Percentage of Gross Scheduled Income (GSI) or total annual rents received per year. Maintenance Rate: Percentage of Gross Operating Income (GOI), or the income the property receives after accounting for vacancy. Property Management Rate: Percentage of GOI or the amount actually collected by the property manager. Property Appreciation Rate: Your expectation of how the property value will appreciate. Expense Inflation Rate: General economic inflation rate, %. Exit Costs: Costs associated with selling property when it is finally sold.		5

	6. Here are the Key Financial Ratios (First Year) Cash-On-Cash ROI: Yearly total before tax cash flow (BTCF) of property divided by total cash invested in the property at acquisition. 5-Year Internal Rate of Return (IRR): A metric that accounts for how much cash flow is received each year, how much was initially invested as well as how much cash you receive each year in a given time period. Capitalization Rate: Annual NOI of the property divided by its purchase price. Gross Rent Multiplier: Purchase price divided by gross annual rents.		6


	7. Operating Property Data (Annual): Table 1 models the income and the expenses of the property to calculate the property's cash flow.		7

Acquisition and Debt Service Summary


Market or Appraised Value	$
Purchase Price	$
Initial Equity	$


Down Payment		%
Amount Financed (80%)	$
Down Payment Amount (20%)	$
Closing Costs & Fees	$
Total cash investment	$


Debt Service Requirements
Interest Rate (30 yr Fixed)		%
Interest Only
Debt Service (P&I), Monthly	$
Debt Service (P&I), Annual	$


Other Property Income and Expense Data
Monthly Rent (GSI)	$
Annual Property Tax	$
Annual Insurance Premium	$

Economic Modeling Assumptions

Annual Rate

Vacancy Rate (% of GSI)

Maintenance Rate (% of GOI)

Property Mgmt Rate (% of GOI)

Property Appreciation Rate

Rent Appreciation Rate

Expense Inflation Rate

Exit Costs (% of Sale Price)

Key Financial Ratios (First Year)

Cash-On-Cash ROI	%
Annual tax before cash flow + Total cash investment

5-year
Internal Rate of Return (IRR):	%

Capitalization Rate

Annual net operating income + Purchase price

Gross Rent Multiplier

Purchase price + Gross annual rents

Operating Property Data (Annual) Table 1

Income

Year1

Year 2

Year3

Year4

Year 5

Gross Scheduled Income(GSI)

Less Vacancy Amount

Gross Operating Income (GOI)

Annual Operating Expenses

Property Management

Annual Property Tax

Annual Insurance Premium

Repairs and Maintenance

Total Operating Expenses

Net Operating Income ( NOI )

Less Debt Service

Before-Tax Cash Flow (BTCF)

End of year property value

5-Year Cash Flows Table 2

Year1

Year 2

Year3

Year4

Year 5

Down Payment

Closing Costs

Annual Cash Flow

Initial Equity

Appreciation

Debt Paydown

Return of Down Payment

Cost to Sell Home

Net cash flows


	8. 5-Year Cash Flows: Table 2 shows the cash flows used to determine the IRR.		8

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Property Analysis Tool

Introduction

Start Here

Acquisition and Debt Service Summary

Debt Service Requirements

Other Property Income and Expense Data

Economic Modeling Assumptions

Key Financial Ratios (First Year)

Operating Property Data (Annual) Table 1

5-Year Cash Flows Table 2

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