“So how much money am I going to make?” Everyone has that question when they consider a real estate investment — and there’s nothing wrong with that.
MartelTurnkey works hard to give you as good an answer as possible to that question before you buy one of our turnkey rentals … and now, the answer is more than just your initial ROI.
For every property we sell on MartelTurnkey.com, we prepare a cash flow summary. We’re thrilled to announce that we have made several updates to our cash flow summary to make it more accurate, as well as more reflective of the changing real estate environment.
Here’s what we added:
First and foremost, we have modified our cash flow projections to include equity buildup over time due to the paydown of the loan.
A quick recap for the newbies — when you buy real estate with a mortgage loan, some of your monthly payment goes to interest on the loan … but some of it also goes to paying down the principal. You are essentially making a payment to yourself, adding to your net worth as the loan gets smaller.
The difference between the value of the property and the balance of the loan is called your equity in the property. This is a part of your net worth. It’s not liquid cash, but it becomes liquid cash when you sell the property. You can also use that equity to pull cash out by refinancing into a bigger loan.
How does this reflect on the updated cash flow statement? Start on the front page of the spreadsheet — the “Summary Page” tab. The upper right-hand box is called “Summary of Returns By Purchase Method.” You will see a percentage ROI for if you:
– Bought the property all-cash (“Estimated Cash Purchase Gross Return On Investment”)
– Bought the property with a mortgage loan (“Estimated Annual Return — Financed Purchase”)
There’s no equity buildup reflected in the “all-cash” ROI. After all, in that calculation, there’s no principal to recapture because there is no loan.
But the second figure incorporates the gradual increase in equity adding to your net worth due to paydown of the loan principal (according to the loan terms we estimate to be most optimal).
Want to dig deeper? Go to the bottom of the spreadsheet and select the “Leverage” tab. This is where we break down the details of our assumptions about the loan. These assumptions include the anticipated loan-to-value, interest rate, and loan term.
About halfway down the page on the left-hand side, you will see a box titled “Summary of Returns.” Look for the field labeled “Estimated Annual Equity Buildup.” You will see we have included an assumption of 11% equity buildup per year.
This is the average annual equity recapture over the course of a 30-year loan. Actually, it’s less in the early years of the loan, but it gets greater over time. The longer you hold the property, the closer it will get to 11%, and most of our investors intend to hold these assets long-term.
If you want to dig even deeper, move one tab over to amortization. Here, we break down the amortization schedule, where you see exactly how much equity you recapture with each loan payment.
The cash flow summary also includes 10-year projections for both all-cash purchases and financed purchases. You will find them at the bottom of the spreadsheet under the tabs “Projections Cash” (all-cash) and “Projections Loan” (financed with a mortgage loan).
On these projections, you can see how our assumptions play out in terms of cash flow and equity growth, year by year, over the course of ten years. The projections factor in annual increases in revenue, annual increases in operating expenses, and annual appreciation. The “Projections Loan” tab also factors in equity buildup as described above.
These updates to our standardized cash flow summaries mark a significant upgrade in our ability to provide more accurate ROI projections to our clientele of investors — and to accurately demonstrate the wealth-building power of leveraged real estate investing.
Ready to invest? Reach out to MartelTurnkey today. We always have a robust selection of properties to choose from — properties we hand over renovated, rented, under management, and cash-flowing from Day 1.