Copy this new Scenario to your Real Estate Financial Planner™ software:
Ep 1 Andrea - Baseline
This is Episode 1 of Real Estate Financial Planner™ podcast.
Andrea's baseline story: "How to Acquire 8 Rental Properties With Down Payments for Two"
- 40 years old
- Has her accounting degree from Arizona State University
- Works in accounting for a small manufacturing business - she's a planner
- Earns about $4,000 per month
- Divorced, single mom with 2 small boys (age 2 and 4)
- Has $100K saved up including some of the joint proceeds from the sale of a previous home
- Money is going to be tight supporting her and two kids on just her salary so not a lot to save
- Wants to be able to provide for her family, save for retirement
- Original plan was to buy two rental properties with 20% down payment and rent while she saves up for 5% down payment for a property to live in
- If she had done that, she'd have small positive cash flow from the rentals (her savings)
- Decides to buy a home with 5% down and while talking to the lender and her real estate agent realizes that she is required to stay in the property for a year, but could covert them to rentals after a year
- This would allow her to buy more properties and have a larger asset base (less immediate cash flow)
The Scenario you want to copy into your Real Estate Financial Planner™ software has the following:
- 2 Accounts (including
Default Cash Account)
- 1 Properties
- 3 Rules
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
Propertiesyou own to cash-out refinance and buy more Propertiesor 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...
- Modeled for 480 months (40 years)
- 15% effective income tax rate
- 3% inflation rate
- 4.875% mortgage interest rate
- 4% yearly safe withdrawal rate (SWR)
- $4,000 minimum target monthly income in retirement (MTMIR) in today's dollars
- $20,000 ideal target monthly income in retirement (ITMIR) in today's dollars
Summary of assumptions for the Account in this Scenario.
- Account Name: All-In-One Account
- $100,000 starting account balance
- 8% yearly rate of return (at start)
- Asset Type: Stocks
Summary of assumptions for the Property in this scenario (at the start of the Scenario).
Property Address/Description: Typical Rental Property
Propertyis a Dynamic resuable template of a property that we can buy multiple copies of using Rules.
Propertyis a Nomad™ property that you live in until you buy your next owner-occupant property. When you buy your next Nomad™ property, this one becomes a rental.
Propertyuses dynamic Rulesto determine when we buy/sell it in the Scenario.
- Account for down payment, income and expenses for this
Property: All-In-One Account
- $250,000 property value and purchase price and it goes up at a rate of 2% per year.
- 5% of purchase price for down payment.
- 1% of purchase price in closing costs at time of purchase.
- No seller concessions.
- 3.125% is the mortgage interest rate with a term of 360 month mortgage term.
- Private Mortgage Insurance (PMI) at a rate of 0.8% of the initial loan balance until the loan-to-value drops below 80%.
- $1,600 per month in rent but rent increases at a rate of 3% per year.
- 3% of the monthly income is the assumed vacancy rate.
- 10% 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).
These are the Rules included with this Scenario.
Buy Property When Account Has Down Payment - Buy Nomad™ Properties
Ruleruns for the entire Scenario.
Rulewill buy another copy of the Dynamic (template property) Typical Rental Property whenever All-In-One Account has enough for down payment and closing costs...
- Plus at least $10,000 Inflation Adjusted left over in the
Rulerequires that with the purchase of the property with this Rulethat Debt-To-Income ratio remains below 45%.
Rulewill only buy 9 Propertiesmaximum. But if you sell any, it will try to buy more to replace them.
Paycheck and Personal Expenses - Job and Living Expenses
Ruleruns for the entire Scenario.
- Depositing both your paycheck and pulling expenses out of the same All-In-One Account.
- Both paycheck and personal expenses will be Inflation Adjusted.
- Gross paycheck is $4,000 Inflation Adjusted.
- Assuming a tax rate of 19.65% on your paycheck.
- Net paycheck (after taxes) is $3,214 Inflation Adjusted per month.
- The paycheck will stop when they reach "Financial Independence" (goal of Minimum Target Monthly Income in Retirement achieved).
- Personal expenses are $1,980.54 Inflation Adjusted per month.
Passive Income - Andrea's Social Security at Age 65
Rulestarts on Jan 2046 and runs for the rest of the Scenario. Passive Incomeis typically used for things like social security, pensions, or annuities. Unlike Paycheck and Personal Expensesthey count toward whether you qualify for financial independence.
- $1,423 Inflation Adjusted in gross passive income per month.
- Assuming a tax rate of 18.63% on this passive income.
- Net (after taxes) deposited to All-In-One Account is $1,157.90 Inflation Adjusted per month.
These are the
- Month 1 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 13 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 37 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 49 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 61 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 73 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 85 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 97 Bought New Dynamic Property Based On Rule Buy Property When Account Has Down Payment
- Month 135 Achieved Financial Independence Goal
- Month 361 Paid Off Mortgage
- Month 373 Paid Off Mortgage
- Month 385 Paid Off Mortgage
- Month 397 Paid Off Mortgage
- Month 409 Paid Off Mortgage
- Month 410 Achieved Ideal Financial Independence Goal
- Month 421 Paid Off Mortgage
- Month 433 Paid Off Mortgage
- Month 445 Paid Off Mortgage
- Month 457 Paid Off Mortgage