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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.

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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 more  Properties 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 using  Rules.
  • This  Property uses dynamic  Rules to determine when we buy/sell it in the  Scenario.
  • 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...

Property Address/Description: Subject-To Property

  • This  Property is a Dynamic resuable template of a property that we can buy multiple copies of using  Rules.
  • This  Property uses dynamic  Rules to determine when we buy/sell it in the  Scenario.
  • 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...

Rules

These are the Rules included with this Scenario.

Paycheck and Personal Expenses - Sales Job from Mobile Phone Company

  • This  Rule runs for the entire  Scenario.
  • 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 entire  Scenario.
  • 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 the  Scenario 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 14  Properties 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  Rule adjusts the Down Payment as Percent on just one  Property template in the  Scenario; the Subject-To Property Property template.

  • This  Rule runs for the entire  Scenario.
  • 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  Rule adjusts the Appreciation Rate on all  Properties in the  Scenario.

  • This  Rule runs for the entire  Scenario.
  • 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  Rule adjusts the Rent Appreciation Rate on all  Properties in the  Scenario.

  • This  Rule runs for the entire  Scenario.
  • 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 the  Scenario.
  • 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 5  Properties maximum. But if you sell any, it will try to buy more to replace them.

Significant Events

These are the  Significant Events for this Scenario.

  • 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