Trust But Verify
I got email from a real estate agent yesterday outlining the numbers for a 4-plex in Texas. He did a great job of putting the numbers in a spreadsheet and then creating an image, which he then embedded into the email itself. This saved a lot of time and I’m sure resulted in a lot more of his investors actually looking at it right then, as opposed to filing it away for a later viewing only to forget it.
The only problem was the numbers were off. Instead of calculating a 2.5 or 2.75% tax rate, he calculated 1.35% tax rate. There was also no vacancy factored it. When using property management, there is usually a leasing fee, which can range from 50%-100% of the frist months rent. This is above the 8-10% property management fee, which was also conveniently set to 0%. I don’t know if this was deliberate but when you’re running the numbers these sort of errors will throw you off.
After fixing these errors, the $997/mo cashflow became $52/mo and the Cash-on-cash dropped from 37% to 1.97%!!! This kind of mistake will KILL your investment strategy.
If you don’t know how to do this kind of simple calculation, your real estate career will be sort lived!!! [I strongly recommend What Every Real Estate Investor Needs to Know about Cash Flow... And 36 Other Key Financial Measures
Trust but verify!
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September 17th, 2006 at 2:57 pm
This is a great book. Great recommendation.