The Real Estate Financial Planner Blueprint™
SS 011 Investing $100,000 in CDs at 2.25%/yr
This Scenario is made up of 2 Accounts. Let's look at each one in more detail.
By the way, we assume that all dates in our Scenarios are for the first of the month. This significantly simplifies the math and does not significantly impact the results of the modeling.
The Special Account
The Account is a special type of Account for us for a couple of reasons.
First, it is the only Account that is required to be present in every Scenario. We require it because it is the special Account we go to when there is not enough money in another Account to withdraw money.
For example, if the Scenario ends up having negative cash flow on a Property and there is not enough money in the Account that we would normally be depositing and withdrawing the income and expenses of that Property to, where do we get the money from to handle that negative cash? In that case, we'd take as much as we could from the Account that was supposed to be handling the income and expenses of the Property and then any deficit would be taken from this special Account.
Because the Account is the go-to Account when we have a shortage of money, it is also the only Account that can have a negative balance.
You can think of it as a way of keeping track of how much extra money from outside the model that you would need to add to the Scenario and when.
Cash flow is important to the success of your investing endeavors and we have several classes to help you maximize it on every property you own.
Cash Flow Explosion Class Recording
Buying Down Interest Rates Class Recording
Another interesting fact about the special Account is that it does not earn any interest. The return on it is always 0% because it is intended to be looked at as a special Account that only stores cash.
Some folks may choose to just use the default Account when running their own Scenarios to simplify their modeling and see how much money they'll need to implement a specific strategy. However, if you want your excess cash to be earning a return like you would in a typical savings or investment Account, you would want to use an Account other than the Account since the Account can never earn a return on money in that Account.
$100,000 Invested in CDs at 2.25%/year Account
We start tracking the Account we call the $100,000 Invested in CDs at 2.25%/year Account at the very start of the Scenario, which we assume to be Feb 2021. We assume that it had an initial balance of $100,000.
For this Account, we assume that you're earning a rate of return on any money in that Account of 2.25% per year.
How The Real Estate Financial Planner™ Software Calculates Returns
The Real Estate Financial Planner™ software calculates your return on investment monthly even though the returns are typically stated as a yearly return. So, each month, based on the amount that is in the Account that month, The Real Estate Financial Planner™ software will calculate what the return was for that month only.
It is also important to note that we're not just dividing the return by 12 to get the month return. Instead we are calculating what return you'd need to get monthly such that if it were compounding, it would be the yearly return. In other words, for this Account it would not be 2.25% ÷ 12 months which is 0.1875% per month. Instead, it would be 0.18559% per month.
This is similar to how we calculate other compounding returns in The Real Estate Financial Planner™ software as well like appreciation and rent appreciation when dealing with Properties.
Summary of Accounts
These are the Accounts that we have in this Scenario.
|Account||Date Opened||Opening Balance|
|Default Cash Account||Feb 2021||$0|
|$100,000 Invested in CDs at 2.25%/year||Feb 2021||$100,000|
|Total for Scenario:||$100,000|
Based on the Accounts that we have when we start this Scenario, it looks like we have a total starting balance in all the Accounts of $100,000.
Next, let's take a look at the Properties that we have in this Scenario.Copy Scenario into my Real Estate Financial Planner™ Software Account
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