This pro-forma will help you determine whether to purchase a rental property based on the cash flow and expected return.
The #1 mistake made by real estate investors is that they use emotion to make purchase decisions on rental properties. With a buy/hold strategy for rental properties, emotion should not get in the way of where and how to make your investment. There are two different investment strategies to purchase rental properties, and many real estate investors use a combination of both:
Neither strategy is a get rich quick, and rental properties require a long-term investment.
A spreadsheet will take the emotion out of the purchase. These financial spreadsheets use data and numbers to determine whether you will get a good financial return on the investments. Our team provides both Excel AND Google Sheets for download. Please note that this is a template and you are responsible for checking the numbers, formulas, and math.
You will want to hire a strong REALTOR® who knows the market and works with real estate investors. They will help you make the right decision and call you out on some of the numbers. For example, if you keep the eviction rate the same across property classes, then you most likely have a calculation error in your real estate investor pro forma. Class D properties have an increased likelihood of eviction compared to Class B or Class A properties.
You also need to make sure you have capital for your real estate investments. This includes a reserve for any unforeseen expenses in the first year. Know what you can afford on the down payment and/or find alternative financing to fund your investment. And if you're just getting started, learn more about the best strategies for real estate investing.