The Real Estate Financial Planner Blueprint™
Ep 23 Norm and Norma - $25K Fix and Flips Every 6 Months - Buy 20% Down Payment Rentals
Final Month Summary
By the time we get to the very end of this Scenario, our net worth over time is shown below. Net worth takes into account all the Account balances as well as the equity in all the Properties.
After the final month, Month 720, the total net worth is $120,814,498.02.
Realize though that we've had 60 years of inflation. A dollar in month 720 is worth approximately $5.88 in today's dollars. So, your net worth in Month 720 is more like having the spending power of $20,556,791.93 in today's dollars. The following is an inflation adjusted chart of net worth over time.
Number of Properties
In the final month of this Scenario, you end up with 10 Properties total. The chart below shows you how many you owned and what month you acquired them.
The following chart shows the total amount of monthly rent you are receiving for all the rented Properties combined. In Month 720 you were collecting $151,797.46 in rent each month which in inflation adjusted dollars is like collecting $25,828.60 in today's dollars.
The next two charts show the monthly rent that we are collecting on each of the 10 Properties (except the one we are living in). For the first chart, it shows the monthly rents stacked on top of each other, so you can see the total sum of the rents (that we just previously showed you) for each month in the Scenario.
In the chart below, however, we are just looking at the last month, Month 720. The chart below shows the rent for each Property in that last month. Again, if we adjust for inflation so we can think about them in today's dollars, they'd be much lower.
We've looked at rent, but what about cash flow? The following chart shows how our True Cash Flow™ has grown over time. In the final month, our True Cash Flow™ is $111,759.38. If we adjust for inflation, then in today's dollars that is like getting $19,016.05 per month in cash flow.
Your True Cash Flow™ of $111,759.38 per month exceeds the $0 per month that you're collecting from your gross paychecks. So, in effect, you've been able to replace your income from your paychecks with rental income.
When summing the total cash flow™ of the Properties for the chart above we are specifically excluding the Property that you are living in. The Property that you live in would, of course, have negative cash flow.
If you recall, depreciation is a tax benefit you receive from rental Properties. We do not get depreciation from Properties that we are living in (unless we are renting out part of the Property... but that's a discussion for you and your accountant).
With residential Properties, we can depreciate the value of the building (not the land) over 27.5 years. With commercial Properties such as multi-family Properties with 5 units or more, you can depreciate the value of the building (again, not the land) over 39 years. So, if we acquire Properties early in the Scenario, we may not be able to depreciate them for the entire duration of the Scenario.
The chart below shows the depreciation we were able to take, per month, on each rental Property.
Another way to look at this is to see how much depreciation we have combined for each Property we are able to depreciate. The following chart shows that by stacking each Property's depreciation for that month.
By the very end, Month 720, the following shows just how much depreciation we are still collecting from each rental Property.
Let's look at your equity now.
If you recall, there are really three ways to measure equity: total equity as the difference between the value of the property and the balance of any loans, total equity available via a cash out refinance and, finally, the equity available if you were to sell the property with a real estate agent (after your expenses). First, let's look at the total equity as the difference between the Property value minus any loan balances you have remaining on the Property.
In Month 720, you have $22,093,511.64 in total equity. If we adjust for inflation, that looks like you have $3,759,248.51 in total equity in today's dollars.
What about equity we could access via cash out refinances? Well, if we assume that you can only borrow 75% of the property value, then you have $16,570,133.73 in Month 720. That is like having $2,819,436.38 in cash out refinance equity in today's dollars after we adjust for inflation. If ever you needed a cash infusion to do something or pay for something, you could do a cash out refinance and access some or all of that money. It would reduce your cash flow (since you'd have an increase in monthly payment for the cash out refinance).
Then there is the third way to think about equity: the equity you'd have if you sold the Property with your favorite real estate agent. If your real estate agent charges 3% for their brokerage service and they agree to pay the real estate agent that brings the buyer an additional 3% then you're agreeing to 6% in total real estate commission. If we also assume that your share of the closing costs is an additional 1%, then there is a total cost of sale of 7% of the sale price of the Property. We can look at the amount of equity you have by taking 93% of the sale price minus your current loan balance to determine what your equity is if you were to sell your Properties with a real estate agent. In Month 720, you'd have $20,546,965.83 in total equity from all Properties. That is about $3,496,101.12 in today's dollars if we adjust for inflation.