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Sam Sells His Way To Financial Independence
Sam is a salesman at a local mobile phone company. He uses his sales skills to sell his way to financial independence with creative real estate financing strategies.
- Earns $15 per hour... that's $2,500 per month... that's $30,000 per year.
- Doesn't save any of his paycheck. Lives on the full $2,500 per month.
- Doesn't own a home. Rents a home with a couple roommates.
- Starts with $3,000 saved in a checking account.
- Going to buy homes "subject to" the existing financing from motivated sellers.
- Immediately puts a Tenant-Buyer in each property, getting a small rebate on on his down payment in the form of a non-refundable option fee.
- Tenant-Buyers cash him out of the properties after 36 months. In an ideal modeling world, this would be variable but it is not.
- Buys the "subject to" for the first 60 months.
- Month 61, he starts converting the proceeds of Tenant-Buyers cashing him out into 20% down long-term rentals.
- Stops working for the mobile phone company when he achieves FI.
The Scenario you want to copy into your Real Estate Financial Planner™ software has the following:
- 2 Accounts (including
Default Cash Account ) - 2 Properties
- 8 Rules
Please register for a Forever Free Account or Login to your existing Real Estate Financial Planner™ software to copy this Scenario into your account.
Once it is in your account, you can view detailed Charts for dozens of variables and edit any of the assumptions for Accounts, Properties, and Rules to run your own what-if Scenarios.
You can change things like:
- Adjust how much money you start with in any Account
- Model variable stock, bond and real estate rates of returns
- Change how many Properties you buy and when you buy them
- Set your own personalized target monhtly income in retirement to indicate when you reach financial independence
- Model receiving social security payments when you reach a certain age
- See what happens if there is a market crash or correction for your stocks, bonds and/or your real estate
- Tweak price and rent appreciation rates for individual Properties or all your Properties
- Find out what happens if you pay off your mortgages early... with cash flow each month or only when you have enough to pay off the Property in full
- Use equity in
Properties you own to cash-out refinance and buy moreProperties or invest it elsewhere - Model buying more Properties than you need then selling off any extras to pay off the remaining Properties to achieve your own user-defined financial independence number
- Evaluate your own safe withdrawal rate and see how it impacts your investment plan
- And much, much more...
Scenario
- Modeled for 480 months (40 years)
- 16.87% effective income tax rate
- 2% inflation rate
- 3.5% mortgage interest rate
- 4% yearly safe withdrawal rate (SWR)
- $2,500 minimum target monthly income in retirement (MTMIR) in today's dollars
- $6,000 ideal target monthly income in retirement (ITMIR) in today's dollars
Accounts
Summary of assumptions for the Account in this Scenario.
- Account Name: All-In-One Checking Account
- $3,000 starting account balance
- 1% yearly rate of return (at start)
- Asset Type: Cash
Properties
Summary of assumptions for Properties in this Scenario (at the start of the Scenario).
Property Address/Description: 20% Down Rental
- This
Property is a Dynamic resuable template of a property that we can buy multiple copies of usingRules . - This
Property uses dynamicRules to determine when we buy/sell it in theScenario . - Account for down payment, income and expenses for this
Property : All-In-One Checking Account - $250,000 property value and purchase price and it goes up at a rate of 2% per year.
- 20% of purchase price for down payment.
- 2% of purchase price in closing costs at time of purchase.
- No seller concessions.
- 4.5% is the mortgage interest rate with a term of 360 month mortgage term.
- $1,650 per month in rent but rent increases at a rate of 2% per year.
- 3% of the monthly income is the assumed vacancy rate.
- 12% of the monthly income is the assumed maintenance rate.
- 10% of the monthly income is the assumed property management rate.
- 0.65% of the value of the property each year is the assumed property taxes rate. Based on the initial value of $250,000 that's about $1,625 per year in property taxes at the start and it changes as the property value changes.
- 0.4% of the value of the property each year is the assumed property insurance rate. Based on the initial value of $250,000 that's about $1,000 per year in insurance costs at the start and it changes as the property value changes.
- This is a residential property and 15% of purchase price is considered the value of the land (when doing our depreciation calculation).
Return in Dollars Quadrant™
The following is the estimated Return in Dollars Quadrant™ for this property based on its original assumptions for the first year.
Return On Investment Quadrant™
The following are the estimated Return on Investment Quadrant™ for this property for year 1. We take the returns for each component and divide by the "Total Cost to Close" (down payment, rent ready costs, closing costs - seller concessions). This first one ignores reserves.
ROIQ+R6™
Return on Investment Quadrant™ with 6 months of reserves at 1%.
ROIQ+R12™
Return on Investment Quadrant™ with 12 months of reserves at 8%.
How to Calculate
See the steps walking you through how to calculate various metrics for this property.
Walkthrough how to calculate...
- Gross Potential Profit
- Gross Operating Income
- Operating Expenses
- Net Operating Income
- Cap Rate
- Cash Flow
Property Address/Description: Subject-To Property
- This
Property is a Dynamic resuable template of a property that we can buy multiple copies of usingRules . - This
Property uses dynamicRules to determine when we buy/sell it in theScenario . - Account for down payment, income and expenses for this
Property : All-In-One Checking Account - $250,000 property value and it goes up at a rate of 2% per year.
- $240,000 property purchase price
- 1% of purchase price for down payment.
- 0.2% of purchase price in closing costs at time of purchase.
- No seller concessions.
- 3.5% is the mortgage interest rate with a term of 360 month mortgage term.
- Private Mortgage Insurance (PMI) at a rate of 0.7% of the initial loan balance until the loan-to-value drops below 80%.
- $1,595 per month in rent but rent increases at a rate of 2% per year.
- 3% of the monthly income is the assumed vacancy rate.
- 3% of the monthly income is the assumed maintenance rate.
- 0.65% of the value of the property each year is the assumed property taxes rate. Based on the initial value of $250,000 that's about $1,625 per year in property taxes at the start and it changes as the property value changes.
- 0.4% of the value of the property each year is the assumed property insurance rate. Based on the initial value of $250,000 that's about $1,000 per year in insurance costs at the start and it changes as the property value changes.
- This is a residential property and 15% of purchase price is considered the value of the land (when doing our depreciation calculation).
Return in Dollars Quadrant™
The following is the estimated Return in Dollars Quadrant™ for this property based on its original assumptions for the first year.
Return On Investment Quadrant™
The following are the estimated Return on Investment Quadrant™ for this property for year 1. We take the returns for each component and divide by the "Total Cost to Close" (down payment, rent ready costs, closing costs - seller concessions). This first one ignores reserves.
ROIQ+R6™
Return on Investment Quadrant™ with 6 months of reserves at 1%.
ROIQ+R12™
Return on Investment Quadrant™ with 12 months of reserves at 8%.
How to Calculate
See the steps walking you through how to calculate various metrics for this property.
Walkthrough how to calculate...
- Gross Potential Profit
- Gross Operating Income
- Operating Expenses
- Net Operating Income
- Cap Rate
- Cash Flow
Rules
These are the Rules included with this Scenario.
Paycheck and Personal Expenses - Sales Job from Mobile Phone Company
- This
Rule runs for the entireScenario . - Depositing paycheck into All-In-One Checking Account but no personal expenses with this
Rule . - Personal expenses will be Inflation Adjusted.
- Gross paycheck is $2,500 Inflation Adjusted.
- Assuming no taxes on this paycheck. It is possible this is already an "after-tax" amount.
- The paycheck will stop when they reach "Financial Independence" (goal of Minimum Target Monthly Income in Retirement achieved).
Paycheck and Personal Expenses - Personal Expenses
- This
Rule runs for the entireScenario . - No paycheck, but pulling expenses out of All-In-One Checking Account.
- Paycheck will be Inflation Adjusted.
- Assuming no taxes on this paycheck. It is possible this is already an "after-tax" amount.
- This paycheck will not stop at retirement.
- Personal expenses are $2,500 Inflation Adjusted per month.
Buy Property When Account Has Down Payment - Buy Homes Subject To
- This
Rule starts at the beginning of theScenario but stops running at month 60. - This
Rule will buy another copy of the Dynamic (template property) Subject-To Property whenever All-In-One Checking Account has enough for down payment and closing costs. - This
Rule ignores Debt-To-Income ratio. - This
Rule will only buy 14Properties maximum. But if you sell any, it will try to buy more to replace them.
Set Value On Properties - Make Down Payment Required Random To Model Motivated Seller Variability
This
- This
Rule runs for the entireScenario . - Changes the value of Down Payment as Percent on Subject-To Property.
- The
Rule sets the value of Down Payment as Percent each month that it runs using a random number between -10 and 20 with a standard deviation of 5.000 in discrete steps of 0.100. - However, values can never be lower than 0.000 and never higher than 20.000.
Sell Rental Properties After Owning Them For Specific Period of Time - Sell Subject To Properties To Tenant-Buyers After 3 Years
Set Value On Properties - Random Price Appreciation
This
- This
Rule runs for the entireScenario . - Changes the value of Appreciation Rate on all Dynamic (template) Properties that you can use other
Rules to purchase. - The
Rule sets the value of Appreciation Rate each month that it runs using a random number between -4 and 8 with a standard deviation of 3.000 in discrete steps of 0.100. - However, values can never be lower than -4.000 and never higher than 8.000.
Set Value On Properties - Random Rent Appreciation
This
- This
Rule runs for the entireScenario . - Changes the value of Rent Appreciation Rate on all Dynamic (template) Properties that you can use other
Rules to purchase. - The
Rule sets the value of Rent Appreciation Rate each month that it runs using a random number between -4 and 8 with a standard deviation of 3.000 in discrete steps of 0.100. - However, values can never be lower than -4.000 and never higher than 8.000.
Buy Property When Account Has Down Payment - Buy 20% Down Rentals
- This
Rule starts on month 61 and runs for the rest of theScenario . - This
Rule will buy another copy of the Dynamic (template property) 20% Down Rental whenever All-In-One Checking Account has enough for down payment and closing costs... - Plus at least $20,000 Inflation Adjusted left over in the
Account - This
Rule ignores Debt-To-Income ratio. - This
Rule will only buy 5Properties maximum. But if you sell any, it will try to buy more to replace them.
Significant Events
These are the
- Month 1 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 7 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 8 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 24 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 25 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 26 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 30 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 33 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 34 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 35 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 36 Sold Property After Owning It For 36 Months
- Month 36 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 37 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 38 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 39 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 39 Achieved Financial Independence Goal
- Month 40 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 42 Sold Property After Owning It For 36 Months
- Month 42 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 43 Sold Property After Owning It For 36 Months
- Month 43 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 59 Sold Property After Owning It For 36 Months
- Month 59 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 60 Sold Property After Owning It For 36 Months
- Month 60 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 61 Sold Property After Owning It For 36 Months
- Month 61 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 65 Sold Property After Owning It For 36 Months
- Month 65 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 68 Sold Property After Owning It For 36 Months
- Month 69 Sold Property After Owning It For 36 Months
- Month 69 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 70 Sold Property After Owning It For 36 Months
- Month 71 Sold Property After Owning It For 36 Months
- Month 71 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 72 Sold Property After Owning It For 36 Months
- Month 72 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 73 Sold Property After Owning It For 36 Months
- Month 74 Sold Property After Owning It For 36 Months
- Month 75 Sold Property After Owning It For 36 Months
- Month 77 Sold Property After Owning It For 36 Months
- Month 78 Sold Property After Owning It For 36 Months
- Month 94 Sold Property After Owning It For 36 Months
- Month 95 Sold Property After Owning It For 36 Months
- Month 421 Paid Off Mortgage
- Month 425 Paid Off Mortgage
- Month 429 Paid Off Mortgage
- Month 431 Paid Off Mortgage
- Month 432 Paid Off Mortgage