Calculating projections (proformas) on a real estate property
Financial projections are important to understand how your property is likely to perform in the future, should you decide to make it an investment property, like a rental. Investors often fail to recognize all the nuances we need to consider when predicting the future and forecasting the "unforeseen" emergencies in a property that matter.
In your property details page, Realdax does all the heavy lifting of figuring out what are the market rents you can collect on your property, the projected vacancy rates and much more that goes into the cash flows of an investment property.
Making adjustments to any of these values will have an effect on the projected returns and pro-formas of a property. Let's explore them one by one:
What's the initial capital out of pocket required to acquire the property?
- Offer Price: The price to be offered or paid for the property.
- Rehab Costs: The cost of rehabbing the property (when needed) to bring it up to livable conditions comparable to its local market standards, so it can be rented.
- Closing Costs: The total amount contributed by the buyer to the closing costs incurred for the transaction.
- Financing Type: The different types of notes/mortgages that can be used to pay for the property (like cash, 15-year mortgage, or 30-year mortgage).
- Interest Rate: When financing the property with a mortgage, the associated interest rate on the note (loan/mortgage).
- Down Payment: The down payment on the property. This field is only relevant when the buyer is financing, instead of paying cash for the property
How much will this property produce in revenue on a yearly basis?
- Market Rent (monthly): The estimated market rent to be collected on the property. Realdax estimates this value for you based on previously rented comps over the last 12 months in the area, but you can adjust it to make it more accurate.
- Vacancy: The percent of the year the property will be vacant. Properties experience vacancy time when tenants are leaving and new ones are coming, or when major repairs need to be done, among many other things.
- Tenant Turnover: Here you specify the length of the stay from the same tenant you are planning to have. Usually, high-quality tenants will renew leases every year if they like the property and the landlord.
- Other Income: Refers to additional income generated by the property that is not directly from the rents. For example, coin laundry, vending machines, if you plan to charge fee-based utilities, etc.
How much does it take to maintain this property in good working conditions?
- HOA (monthly): If the property is part of an HOA, there will be an HOA fee, usually charged on a monthly basis.
- Maintenance: Additional landscaping, pest control, gas refills, common area maintenance, lights and fixtures, etc.
- Property Taxes: The real estate taxes
- Insurance: The insurance premium for the property. If the property is financed (with a mortgage) this is required by the bank. When paying cash, insurance is optional.
- Other Expenses: There are properties that may incur additional expenses, such as Club/Golf Memberships (which many times are required), Pet Fees, Security and Alarm Systems, among other. You can put anything extra in this bucket. No need to be down to the dollar, a ballpark estimate will do.