Should I Buy a Rental Property?
Real estate is one of the most popular investments for a variety of reasons. Typically , homes are the biggest purchase and largest investment for Americans. Many famous people have made millions/billions investing in real estate. However, many people don’t put pen to paper before making a real estate purchase. Maybe they have watched an episode of Flip or Flop or listened to a friend or neighbor’s tales of success. No matter the reason, real estate can be a very profitable investment, provided it is done prudently.
In this financial model, we will find a property using Zillow, and construct a model for buying and renting that home to someone else. This model uses basic formulas like addition , subtraction, multiplication, and also the Payment (PMT) formula for calculating the mortgage payment. Once the basic model is constructed, we will compare different down payment options.
This model is a good basic building block for calculating cash flows from rental properties. It can be expanded to include depreciation (for accounting purposes), loan amortization, taxes due on income, and eventually, a sale for profit. As your skills expand, so will your ability to build bigger and better models.
Happy modeling!
*This financial model is for informational purposes only and does not constitute a recommendation or financial advice. This model is simple and does not account for appreciation, depreciation, maintenance, transaction costs, principal payments, etc.