If you're a fan of Rich Dad, Poor Dad, please also read http://www.johntreed.com/Kiyosaki.html.
I looked at cash flow in the real estate market seriously. And created a Real Estate Cash Flow Calculator.
The link takes you through an article that describes my results. Plus, you can download the calculator too! (It's a Microsoft Excel document)
Comments: Please send me your comments here. I'm open to learning more, and to refining the calculator so it makes sense.
27 comments:
Hi Deepak,
Itz been a pleasure seeing your work and articles. I just happened to get you on Ryze. I am proud of you buddy.
Hope to talk to you soon
Best regards,
Suresh (This is KREC 94 Boda)
ssuresh@yesjexpert.com
I would like to make some adjustments to the spreadsheet so I can use it here in america...what is the password to unprotect the3 worksheet? If you don't want to send it to me please send me a spreadsheet that includes a 30 year loan in U.S. $.
Thanks
Michael,
I'm not keen to open this sheet right now (it's going to be part of another tool), but give me your mail id anyhow. The calculations are quite easy to redo.
Cheers,
Deepak
Awesome stuff...great work! Is there something similar for networth analysis?
I have a networth analyser but honestly it's not displayable to the public. Watch this space, there's something happening behind the scenes.
Hi Deepak,
It has really been an informative article & your blog is really great...thanks a ton for your articles & keep going.
Ajay Hegde
Hi Deepak, well done... you really did a good job. However, as I know, this calculator is for India real estate investor, right? Can you make a U.S. Edition or other country's edition? I think this going to be hot in the market. :-)
Harrison: Thanks...I don't know the US market too much - i.e. what the tax saving incentives are, any special costs etc. I can create one though, if someone can help with the data!
Hi Deepak,
It would be nice if you differenciate loss and gain in different colors. I belive anything going below number line is a loss.
cheers
Manish
Dear Deepak,
Have you made a U.S. version of your real estate investor cash flow sheet? If you have I am interested in viewing it. If you have not and still need the data, I am an American appraiser/investor who would like to help you with it. Thank you idrismartin@hotmail.com
Hi Deepak,
Thanks for the wonderful analysis.My friend had bought a house last year and I analysed myself using the data in his deal.Even if we consider capital appreciation @ 20% and assume home loan rate @ 10% we are better-off investing in stocks (assumed CAGR of 15%).I calculated till the end of 3 years and was surprised to see that investment in stocks beat the investment in real estate quite comfortably.
The only caveat here is, its slightly difficult and risky to find stocks giving that kind of annualised returns.
Thanks for the great post.Btw you have mentioned that property rates had peaked out in 1994-95.Can you give me pointers to any resource where I can find the data for the previous years?
Regards,
Anshul
Hi Deepak,
Fantastic of work. Chotta sugestion, most people when they rent out their properties take and advance payment "usually = to 6-10 months rent" which if deposited in the bank will fetch interest - can u include this component in ur spreadsheet.
Thanks
ashok
Hi Deepak,
Fantastic work. I want some change in it like tenure can be 30 yr & some time we get properties on discount eg $50k worth of property in $30k, that means every yr the appriciation should be based on $50k & EMI should be calcuted on % of loan taken from $30k. If we take 50% loan means $15k paid as down payment & $15K is loan value & EMI should be calculated on that. That will change lots of parameters. Please change it or send the pwd I'll make the change in my sheet.
Hey Deepak .... excellent work .. i was making smething similar for my own use but this is far more comprehensive. I need to change a few conditions in the sheet though - Rental value of property bought is different from rent being paid by me in my current home. Also, tax benefits on interest apply to me but not the principal coz that is already covered through other investments. Can you send me an editable version or share the password.
Thanks
hi deepak
At the outset great job, and thanks for demistifying lots of things.
Two doubts on your spread sheet
1. Why are you not considering tax saving if its a second house because interest payment on any number of house properties is allowed as deduction from income from huse property. On the contrary interest outgo on self occupied property is allowed as deduction onl;y upto 150000p.a. but on a subsequent house property it is unlimited.
2. I could not see usage of inflation number anywhere.
Thanks Vijay Chouhan
Great job Deepak.
I understand you dont blog here anymore but an implicit assumption that you are making is that rent paid by the buyer will be equal to rent received. This can throw a lot of things out of gear.
goodness I haven't replied to all the comments!
Manish: the colour thing, will try.
Anon: No U.S. entry ( I don't knwo tax rules)
Anshul: I doubt there's any long term data for Indian homes available for free, but some data may be available as paid reports etc.
Rajesh: You can change the properties in yellow on the excel sheet.
Sumit: Good point, haven't thought of that, adn the principal bits. I will think about revealing the password or putting this up online.
Mithun: I don't think it would be dramatically different would it? Maybe a few thousand rupees here and there - unless I'm way off?
Some observations on your calculations:
If a flat costs Rs 45 lakh, one has to pay at least Rs 15 lakh in cash under the table. While this would bring down the EMIs on the rest of the sum, the actual interest outgo could be higher.
Either one would have to pledge other debt instruments like National Saving Certificates (at yeild plus 2 or 3 per cent basis) or borrow at commercial rates to raise the black money component.
A flat costing Rs 45 lakh will get just Rs 17,000 by way of rent every month or Rs 2,04,000 annually. Annual rent increases are just about 15-18 per cent but this happens only when property prices are continually rising.
At present in Mumbai when property prices are weakening, rent increases cannot happen automatically. Say, if property prices are down 20 per cent and stays that way for two or three years it becomes cost effective for one to buy rather than rent assuming that rents go up 20 per cent annually.
mumbai journo: Yes, interest payments can be higher (in that case simply increase the interest rate)
Rent will probably go up about 10% max and even that I doubt.
If prices of flats go down due to oversupply, rents will also go down, due to the same reason. Right now there is way too much supply! So either rents will stay stable or go down.
If rental prices go above 6-8% of the cost of a house, the renters will prefer to buy because of the emotional impact. It still doesn't make financial sense at 14% interest rates but there is a lot of pleasure in owning a house.
Houses are not bought just for the pleasure of owning one! If you are a renter who has to shift places every 11 months and play two months rent to the broker every time you move, then buying your own place can solve many problems.
Troubles only multiply if you are young, single and need to live alone. Housing societies frown upon young singletons especially if they have guests.....
Hi Deepak,
Nice calculations, since i am in the process to buy a house myself so i devoted time to evaluate the effect of even the minutest parameters. Will again say that its a great calculation and although its relatively unimportant and trivial and may not change drastically the overall output, still the following improvements can be suggested
1. It can take the income tax benefit for the spouse as well
2. The tax benefit counted in revenues may include tax benefit on interest as well
3. For the 2nd, 3rd, 4th year onwards the future value of the tax saved in 1st year should be added in place of the simple addition formula used.
Do mail me the latest version of the calculator in case you do any updates
Hi Deepak,
I have house of my uncle in the heart of the Pune city its around 18 yrs old 1BHK flat. SHould I purchase that flat which will cost me less around 10 lakhs or go for a brand new flat in outskirts of the city ?
Please let me know which is the good option as we are currently staying in that flat and are used to it but it needs some renovation.
Fantastic and good thought
Deepak S
hi,
Two facts you have forgotten -
1 - The property value keeps on increasing however there is some correction in between - typically the correction is around 6th and 7th year from the turn of the cycle as I write 2009 sep we have a turn around from the correction cycle so the returns would be constant for next 6 years
2 - The property in India has social security attached to it - ask the bank to provide you the loan for its stocks - the haircut is 70% of the present value
;)
Deepak,
Very good work. There are some spreadsheet avaliable but they do not suit in the indian context. Yours is the best one I have came accross so far. Its better than some of the paid ones!
Thank you.
-Niket
1) Plz check calculations based on location of real estate being Mumbai not Banglore.
2) Real Estate has just 3 rules, location, location & location.
3) e.g. Thane a Mumbai subarb area, booking started @ Rs.900 a sq.ft. & in less then 10 Yrs. is @ aprox. Rs.5100 a sq.ft after going up to Rs.6100 a sq.ft. though rents are lo there price still remains strong as ever.
4) this Rs.900 a sq.ft. can never see a price of Rs.500 a sq.ft. it can just go from 5100 to maybe Rs.4100 or Rs.3100 right ? So, it's the best investment one can make in India. (Real Estate).
5) There are 100 ways of doing Real Estate biz. SRA Projects is one place u can see huge action too :)
I just observe a BUG.
1) While calculating Gain (Net value - Investment) [Data->E37]
you consider "Investment" part, without any effects from the "Investment Rate
"[Data->B12] OR "Bank rate for deposits
" [Summary->B11].
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