Cheat Sheet - Back of the Envelope Analysis

Income Analysis
Gross Rent Multiplier
= Total Purchase Price ÷ Annual Gross Rent
○ ex: $100,000 price ÷ $9,600 annual gross rent = 10.42 GRM

One Percent Rule

= Monthly Gross Rent ​≥ ​1% of Total Purchase Price
○ ex: $2,000 monthly rent ​≥ ​1% of $190,000 purchase rice --> $1,900

Cap Rate
= Net Operating Income ÷ Total Purchase Price
○ ex: $12,000 NOI/year ÷ $150,000 price = 8% cap rate

Net Operating Income (NOI)

= Gross Rental Income - Operating Expenses
○ ​ex: $20,000 gross rent - $8,000 operating exp. = $12,000 NOI

The 50% Rule

= rule-of-thumb estimating NOI at 50% of gross rental income
○​ ex: $20,000 gross rent x 50% = $10,000 rough estimate of NOI
Net Income After Financing (NIAF)
= NOI - Financing Costs
○​ ex: $12,000 NOI - $9,500 Financing Cost = $2,500 NIAF/year

Cash-on-Cash Return (ConC)

= Net Income After Financing ÷ Down Payment
○ ex: $2,500 NIAF ÷ $30,000 down = 8.3% ConC

Equity Analysis

Equity
= Full Value - Mortgage Balance

Examples of Building Equity:

1. Discounted price at the time of purchase
○ ​Value = $200k, Purchase Price = $180k, Equity Growth = $20k

2. Forcing appreciation/adding value

○​ Original Value = $200k, New Value = $220k, Equity Growth = $20k

3. Paying down principle using rental income

○​ Principal Balance = $150k, Bal. Yr 10 = $100k, Equity Growth = $50k

4. Passive appreciation
○ Original Price = $200k, Price Yr 10 = $250k, Equity Growth = $50k

Remember - you can also combine as many as possible to maximize equity growth!
Copyright 2019 - Coach Carson, LLC