Properties are real estate that you own. Properties can be any type of real estate. This includes:
- Single Family Homes
- Residential commercial properties with 5 or more units (including apartments)
- Non-residential commercial or industrial properties
- Vacant land; or
- Any other real property
So, how do you add a Property to a Scenario? Let’s go through that together now.
First, login to your Real Estate Financial Planner™.
Next, click on the Properties page.
From the Properties page, click on the Add New Property button.
Once you add a new Property, you will immediately be taken to the page to edit the Property. You can name or enter the address of the Property and modify all the assumptions about the Property from this page.
Your first option is to choose which type of Property this is. You have three choices:
- Dynamic Property
- Nomad™ Property
- Regular Property
You can think of Dynamic Properties as templates of a Property that you intend to buy more than one of at different times over the entire Scenario.
Nomad™ Properties are special types of Dynamic Properties that you live in after you buy it and then convert it to a rental once you buy your next Nomad™ Property.
Regular Properties are what you’d use to add a specific, single use Property to your Scenario. For example, you’d likely use this to enter in Properties you already own if you were modeling your own personal investing Scenario.
Click whether your Property is a Dynamic Property, a Nomad™ Property, or leave both unchecked if it is just a regular, single use Property.
Date Purchased and Sold
First, before I start talking about Date Purchased and Date Sold, I want you to know that Dynamic Properties do not use Date Purchased and Date Sold. Instead, you can only buy or sell Dynamic Properties using Rules.
For regular Properties though, you will want to put the date that you originally purchased the Property in the Date Purchased field.
If you either never sell the Property or you are going to use Rules to determine when you sell the Property you can leave Date Sold blank.
If you know exactly when you sold or plan to sell the Property, go ahead and enter a Date Sold.
Address or Description
The next fields for you to complete are the address, city, state and zip code of the Property.
If you have a regular Property, it is really easy to enter something that you will easily understand which Property you’re referring to from a list of shown on when dealing with Scenarios, Accounts, Rules or Charts.
If you only have one Property on Main St, you might use “Main St” as the Address and enter in the optional City, State and Zip Code for the Property. We do not currently tie any Property addresses into real world data, so there is no real need to put in a fully fleshed out Address like “1234 Main St”.
In fact, for Properties you could buy more than one of, you may want to describe the Property instead of using an address anyway. For example, if you are adding a Dynamic Property that you plan to buy 5 of over the next 5 years, you may want to use something like the following:
- “3/2 Rental”
- “Aspen Model New Construction”
- “New Construction”
- “Ranch Duplex”
- “10 Unit Apartment Building”
The Real Estate Financial Planner™ software will add a number to the end of the Address as you buy more than one of them. So, the “3/2 Rental” becomes:
- “3/2 Rental 1”
- “3/2 Rental 2”
- “3/2 Rental 3”
- And so on…
For each additional Dynamic Property you buy, it will just add a number to the end of it so you know which one was bought first, second, third, etc.
After Repair Value and Purchase Price
Sometimes you pay full retail for a Property. Other times you may be able to buy a Property at a discount from what it is currently worth. The Real Estate Financial Planner™ software allows you to enter both your After Repair Value and the Purchase Price of Properties you’re buying.
For regular Properties, you’d just enter the value of the Property at the time you purchased it after any repairs you’ve budgeted for in Rent Ready Costs (which we will cover shortly).
For Dynamic Properties the After Repair Value is the value of the Property when we start the Scenario. The Real Estate Financial Planner™ software keeps track of the Dynamic Property as if it existed just outside the Properties you own in your Scenario. Even though you don’t own until you purchase a copy of it with a Rule, it goes up in value if you have a positive Appreciation Rate. Rents go up if you have a positive Rent Appreciation Rate. You can even manipulate these Dynamic Properties that you don’t yet own using Rules.
When you’re ready to buy a copy of the Dynamic Property using a Rule, you are buying the Dynamic Property as it has grown with the likely higher After Repair Value and Purchase Price. So, each copy of the Dynamic Property that you do buy using Rules will likely be at a different After Repair Value and Purchase Price.
The Real Estate Financial Planner™ software will base the value of the Property and therefore appreciation and equity on the After Repair Value. The software does use your Purchase Price for calculating down payments and loan balances, etc.
Mortgage Interest Rate and Term of Loan
Next up is your purchase money mortgage for buying the Property. Enter in your yearly Mortgage Interest Rate from the loan you used to buy the Property.
If you ever want to model what a changing interest rate environment has on a particular Scenario, you can use Rules to change this interest rate on Dynamic Properties that you have not bought yet. When your Rule to buy a copy of that Dynamic Property is triggered, you buy the Dynamic Property with that modified interest rate.
The Real Estate Financial Planner™ software expects to see your interest rate in the 4.675 format (and not .04675).
In addition to Mortgage Interest Rate, we will also need to know the Mortgage Term or how long the loan is for. If you’re dealing with 30 year mortgages, use 360 months here. But, if you want to test how different loan terms impact your investing plan, you can just as easily put 180 months for Mortgage Term to model a 15 year mortgage or whatever the months are for the loan term you’re able to get from your lender.
For down payment, you have two options. You can either define what percentage of the Purchase Price you will use for your Down Payment Percent or you can define what dollar amount you have to put down as Down Payment Dollar.
We only use one of these. If you enter numbers for both, we will ignore Down Payment Dollar and only use the Down Payment Percent.
Why make this a choice? Well, some people might want to test always putting the same dollar amount down when they buy Dynamic Properties. Let’s say you always have $100,000 per year left over from your job income each year and you want to always put that same amount down. You’d use Down Payment Dollar for that and enter in $100,000. Then, no matter what the value of the Dynamic Property you’re about to purchase is, you always put down $100,000.
Most people though will want to use the lowest down payment percentage they can use to get their loan to buy the property. For example, if you’re buying a Nomad™ Property you might be using 5% for Down Payment Percent for those. If you’re doing non-owner occupant rental properties, you might be using 20% for Down Payment Percent.
Just like the down payment options, you have the same two choices for closing costs. You can choose to either make it a percent of the Purchase Price using Closing Costs Percent or a fixed dollar amount by using Closing Costs Dollar.
And just like the down payment, if you enter both the Real Estate Financial Planner™ software will ignore Closing Costs Dollar and only use Closing Costs Percent.
Rent Ready Costs
It is rare to buy a Property that doesn’t need anything done to it after you buy it. This extra money you need to make a property ready for move-in (whether you’re renting or living there yourself), we call Rent Ready Costs.
For significant fix up Properties, this might be a larger number. But, you’re presumably getting those Properties at a discount and so your After Repair Value and Purchase Price values should be farther apart.
For pretty Properties that don’t need a lot of fix up, the Rent Ready Costs might a small number like $500, $1,000 or $1,500. You could use zero if the Properties you are buying are in perfect condition, but it is highly unusual for a Property to not need anything at the time of purchase even if it is only purchasing new fire extinguishers for under the sinks, lawn care, snow removal or paint touch up from dings during moving, etc.
When you get a seller to contribute some money from their proceeds of the sale of the Property to you toward your costs buying the Property, we call that seller concessions. This is what is happening when the seller is paying for some of the buyer’s closing costs.
Similarly to the way the Real Estate Financial Planner™ software handles down payment and closing costs, seller concessions has two options for you; pick one.
You can do either Seller Concessions Percent or Seller Concessions Dollar. If you enter both, the Real Estate Financial Planner™ software will ignore Seller Concessions Dollar and use Seller Concessions Percent only.
If you’re in a hot market where there are multiple offers on Properties, you may not want to model that you’re able to get a lot in seller concessions. You may want to use 0% and $0 in that case. If you are in a soft, slow buyer’s market, you may be able to get a seller to pay for all your closing costs with seller concessions. In those cases, you may want to have the seller concessions match what you used for closing costs above.
The Real Estate Financial Planner™ software calculates the tax benefits of depreciation on your Property as well based on your purchase price and the value of the building(s) by subtracting out the value of the land on the Property.
To properly do this calculation, you need to select whether the Property is residential or commercial. Residential Properties, by US tax code, (and as I write this it does occur to me that I might need to make this more flexible for users that own Property in other countries and taxing entities) are depreciated over 27.5 years. Commercial is over 39 years.
If you have questions about which to use, you should verify with your tax professional. Most folks will be using residential and 27.5 years for rental properties.
In addition to needing to know the type of Property, we also need to know what the Land Value Percent is of the Purchase Price. Different areas and different tax professionals use different rules of thumb to determine this. If you really don’t know, verify with your tax professional later and rerun your Scenario with the updated number, but, for now, use 15%. A 15% Land Value Percent means that for a $300,000 Property, the land was worth $45,000.
Where are you going to get your down payment and closing costs from? Where do you want to deposit rent to and pay your mortgage and other expenses from? That’s what the Real Estate Financial Planner™ software is asking when it asks for the two Accounts.
If you are just using the default Cash Account then select “Cash” or pick the Account from the list of Accounts where you’ll be taking the down payment and closing costs from and then the Account where you want to deposit rents and withdraw expenses. They can be the same Account but they don’t have to be the same Account if you’d rather not.
One example of why you might want to not use the same Account is let’s say you want to pay for the purchase of the Property from a stock market Account or your retirement Account but the cash flow from the Property you want to deposit in your personal savings or checkings Account. It is up to you.
Is your Property going up or down in value? How fast?
Appreciation Rate is the yearly rate that the Property is going up in value. If you use a negative number here that means that the Property is going down in value.
You can modify the Appreciation Rate within the Scenario by using Rules. But this is the default Appreciation Rate if you don’t modify it with Rules.
If you aren’t testing something specific and using a different Appreciation Rate, I’d suggest using the long term average based on Case-Shiller which is about 3%.
Monthly Rent and Rent Appreciation
If you could rent the Property the day you purchased it for the Purchase Price, what could you get for rent per month? That’s Monthly Rent.
And, at what rate is rent increasing or decreasing? Use the Rent Appreciation Rate to estimate how quickly rent is going up each year. Or, use a negative Rent Appreciation Rate to have rent decline over the course of the Scenario.
And, as you may have guessed at this point, you can use Rules at any point in the Scenario to adjust either Monthly Rent directly or Rent Appreciation Rate which will impact how quickly or slowly rent rises or falls.
There is also an advanced, not-usually-used option to allow you to delay the number of months that you delay collecting rent on a Property. With Start Rent After you can enter in the number of months to delay collecting rent for the first time on that Property.
Here are two specific examples you might use this.
- You buy a fixer upper and it takes you X months of fix up before the Property will be ready to rent. In that case, you can set Start Rent After to the number of months that you estimate it will take you to have the Property ready to start renting it.
- You buy a property as a Nomad and plan to stay there for a certain period of time before moving into an apartment. You can enter the number of months you will be living in the Property before you convert it to a rental.
Monthly Other Income
With some Properties you will be able to collect additional income. For example, you may have on-site laundry. For sources of other income, you can enter that in Monthly Other Income and have that other income appreciate at a different pace than rent does using the Other Monthly Income Appreciation Rate.
If you don’t have any other income on your Property, you can use zero here.
When renting your Property, it is unlikely that you will have the Property rented 100% of the time. We use Vacancy Rate as the percent of time that the Property is vacant.
This will vary depending on your commitment to outstanding property management and, to a much lesser degree, your local market conditions. If you’re an excellent property manager and start looking for your next tenant 90 days prior to any lease expiration, you should be able to keep Vacancy Rate to 3% with single family homes across your portfolio and so that’s what I’d recommend. If you know you don’t start marketing for your next tenant until after your current tenant leaves, then your Vacancy Rate could be much, much higher.
Talk to your property manager if you don’t know what number to use here.
Property Taxes and Insurance
The Real Estate Financial Planner™ software uses a slightly different method of calculating Property Taxes and Property Insurance than you’re probably used to seeing… and for a very good reason. The Real Estate Financial Planner™ software calculates your Property Taxes and Property Insurance as a percent of the then current value of your Property. We do this so that your Property Taxes and Property Insurance do not need their own appreciation rates. Instead, the amount you pay in Property Taxes and Property Insurance are really based on how much your Property is worth. As your Property value goes up, it will cost you more to insure it. As your Property value goes up, it will cost you more in taxes.
So, for Property Taxes and Property Insurance you should take what your actual cost for each and divide them by the value of your Property to find out what percent of the value of the property you are paying for each. This will vary based on your local market so it is hard for me to give you a default value, For example, in my market in Northern Colorado, the defaults I recommend, if you don’t know what your exact numbers are, would be .65% for Property Taxes and .4% for Property Insurance. That means for a $300,000 property, your Property Taxes will be about $1,950 per year and Property Insurance will be about $1,200 per year.
Since we use percents of the value of the Property, taxes and insurance will automatically keep up as the value of the Property changes. Of course, if you think it will get out of balance later, you can use Rules to adjust the percentages at any point in the Scenario.
Home Owner’s Association (HOA)
Some Properties—especially newer Properties—will have a Home Owner’s Association (HOA).
For the Real Estate Financial Planner™ software you can enter in what the Yearly HOA fees are and at what rate those fees are going up each year as the HOA Appreciation Rate. Use your actual Yearly HOA for this value and unless you’re testing otherwise, I’d encourage you to use 3% per year for the HOA Appreciation Rate.
With most single family homes, the tenant will be paying the utilities. However, with many duplexes, triplexes, fourplexes, apartments, commercial and industrial Properties the owner may be responsible for paying for some utilities.
Use the Monthly Utilities to model the amount of the utilities that you, as the owner are responsible for paying and the Utilities Appreciation Rate to show the rate that the Monthly Utilities are increasing (or decreasing… if you enter a negative number) each year. If you don’t know what to use for Utilities Appreciation Rate, I’d recommend you use 3% per year.
Other Monthly Expenses
In some, more unusual cases, there will be extra expenses the owner has for running a property. The Real Estate Financial Planner™ software allows you to model these using the Other Monthly Expense 1 and Other Monthly Expense 2 variables. Enter the cost per month for each here or, more commonly, zero if you don’t any. And, you can also enter in separate appreciation rates for each of these. I’d recommend 3% for the appreciation rate for these unless you have a good reason to use something else.
Here are a couple examples of expenses you may want to use these fields for:
- Landscaping, lawn or snow removal service that you provide to your tenants and they don’t pay extra for.
- Non-potable water
- Resort or recreational fees for resort properties
- Cleaning fees for short-term rentals
If you have more than two, you may want to combine one or more to get it down to two other monthly expenses.
Over time you will have maintenance calls from your tenants and your Property will need maintenance to keep it rented at optimal levels. With the Real Estate Financial Planner™ software we allow you to model this by setting aside a percentage of the Monthly Rent to be spent on Maintenance.
The value and, even more importantly, that effective age of your Property will often determine what percentage to use for Maintenance. A brand new Property with a builder’s warranty and everything bring brand new may have very close to zero Maintenance for the first couple of years. A 40 year old, long-term rental Property may have Maintenance hovering around 20% of Monthly Rent. For most Properties, I think you’re likely to be in the 10% to 12% range for maintenance.
By the way, this is different than Monthly Capital Expenditures which we will cover after Property Management.
Many folks will choose to manage their Properties themselves, but a good number of us will choose to trade money for time to pursue other work and play and pay a professional property manager to manage our rental Properties.
The Real Estate Financial Planner™ software allows you to enter the percent of Monthly Rent that we will pay a property manager to manage our property. This should include ALL expenses for the property manager including things like leasing fees, lease renewal fees, our share of marketing and technology costs, etc. In many markets, that means the cost of property management will exceed 10%. Use your real number here, but if you don’t know what number to use, I’d recommend using 12% even though many people will suggest using 10%.
Capital Expenses, Capital Expenditures or Cap Ex… whatever you call them… they are the costs of maintaining your property. When you need to replace a furnace, a roof, update a kitchen or bathroom… you are making capital improvements to your Property. These are Cap Ex.
You can set aside a certain amount of money each month to budget for Cap Ex using the Monthly Capital Expenditures variable when entering a new Property. Then, use the CapEx Appreciation Rate to have this amount increase over the course of the Scenario.
Property Entered, But You’re Not Done…
Save your changes and you’ve successfully saved a Property to the planner. However, you’re not done.
Properties like Accounts, Rules and Goals are reusable and may be used in more than one Scenario.
So, you will need to tell the Real Estate Financial Planner™ software which Properties belong in which Scenarios. You do this by going to the Scenarios page.
Select the Scenario you want to add this Property to and then click into edit that Scenario. Below the fields to edit, you will see a list of Properties that you can add to this Scenario (or remove Properties the same way).
We are considering adding a Premium feature that will allow users to add a Property not at the time of purchase, but mid mortgage.
For example, some people want to enter the Properties they already own without having to look at the previous X years of history. They want to model today forward.
With the proposed Premium feature, you will be able to enter in the current value of the Property, your current loan balance, your monthly payment, your taxes and insurance and the Real Estate Financial Planner™ software will do the math to have your property added in the middle of your mortgage.
If you want to read more about Properties, consider reading these additional blog posts.
- How to Create a Copy of a Property
- How to Add or Remove a Property from a Scenario
- How to Delete a Property
Adding To Scenarios
Properties are not the only thing you can add to a Scenario. Read more about adding Accounts, Rules, and Goals to Scenarios.