Dropmodel Release: An Inside Look at our Rental Cash Flow Model

Dropmodel Release: An Inside Look at our Rental Cash Flow Model

Buying a rental property with the intention of owning long-term is one of the most popular, time-tested investing strategies out there, and for good reason. It starts with buying a property that is in lease-ready condition and/or that is currently leased - no heavy lifting needed. By continuously renting out the property using lease terms between one and two years, investors can benefit from: immediate, stable, and (mostly) predictable cash flow, equity growth from appreciation and loan amortization, a hedge against inflation, and more. 

This strategy is so fundamental that we wouldn’t feel right saying we handle real estate analysis without throwing this one into the mix. So without further adieu, we’re excited to announce the latest analysis tool on Dropmodel: the Rental Cash Flow Model. 

Introducing: The Dropmodel Rental Cash Flow Model

The Rental model is the perfect blend of simplicity and detail, providing a quick rundown of everything you need to know to make investment decisions and get your lenders, partners or family members on board. It usually takes between five to ten minutes to complete, and the comprehensive results make it well worth the effort. Let’s take a look:

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The Inputs

The input phase consists of eight sections, each covering distinct project components, including the purchase, leasing assumptions, operating expenses, and the future sale of the property. By including a sale section, we can display investment returns that take net sale proceeds into account (e.g., Internal Rate of Return). 

The Results

The first thing you’ll see in the results is an Executive Summary, helping you and other stakeholders get oriented with an overview of the project: income and expenses, purchase and sale activity and a few important investment returns. 

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The most eye-opening and valuable information in the results view will likely be the annual cash flow table. This is where you’ll see all of the detailed projections of income and expenses, loan activity, assets and liabilities over time, and time-based investment metrics by year (e.g. return on equity, cash on cash, etc.). Most of the investment performance metrics in the report will be based on what occurs in the cash flow. 

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The Key Performance Metrics section provides two sets of metrics, one for the first year of ownership and the other for the total for the entire hold period. Both are important for getting a sense of the project’s potential compared to alternative projects. The input phase consists of 10 sections, each covering distinct project components, including one that covers the future sale of the property. This section generates investment returns that rely on a sale (e.g., Internal Rate of Return). For those than plan on having a hold-period of forever, they can choose to ignore any investment returns that take a sale into account.

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The Project Breakdown section will provide detailed views of all important project components, including purchase loan, operating expenses, and future sale. 

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The Project Overview section outlines the sources and uses of funds that flowed in and out of the project, as well as a timeline showing critical dates.

The rental strategy should be included in every investor’s repertoire, and we built this model so that you could spend less time in spreadsheets and more time making money. 
 

Dropmodel Release: An Inside Look at our Buy-Renovate-Rent-Refinance (BRRR) Model

Dropmodel Release: An Inside Look at our Buy-Renovate-Rent-Refinance (BRRR) Model