Calculating Numbers on a Rental Property [Using The Four Square Method!]
Articles,  Blog

Calculating Numbers on a Rental Property [Using The Four Square Method!]

100 Comments

  • Kazi Imran Ahmed

    BTW, does anyone know any tool out there that would basically tell me which property has the highest and quickest potential of being rented not possibly go vacant ever as a rental investment when I plug in location, rent, zip code and and some info about renter I am targeting say single, couples, single family , student etc?

  • alistairo79

    Am really curious about the $860/month mortgage, and how that figures into ROI in this video. At 160k at 5% for 30 years gives $858/month (rounded to 860 here), where from that 858, (in the first month): $666 goes towards interest on the mortgage, and $192 goes towards principal. Shouldn't the mortgage expenses be the interest-only? Principal is essentially paying yourself, so is NOT a cost in my figuring. Is that wrong? As interest reduces over time, its hard to nail down an actual figure which can be applied to all months, but I believe the ROI here is higher than the 9% which was concluded at the end of this calculation, as it considers the entire mortgage payment vs only the interest. Is my reasoning off?

  • Anton James

    calculation pretty cool …all of it mostly correct … however my two cents comment : he did not make it clear whether the mortgage payment was an ' interest only mortgage ' or a 'traditional mortgage ' ; ( made up of a principal and interest portion )… Rental income is taxable …. the CRA or IRS will expect income taxes on the $4680 CF PLUS the principal mortgage paydown on the mortgage …. ( said another way , "cashflow" is not the same as " net income " )

  • Iuliu Mesesan

    so 12 years to get your investment back , and after another 8 years , you will have gained a total profit of 8 years worth of rent profits + the value of the property itself
    so you are looking at couple of years of savings to get the mortgage setup and get the house , and then after 20 years you get that 5 times , your investment back
    In the meanwhile you can invest in other things aswell , untill you deplete all the options
    at some point if you get good at it , you can live off this , but this will take years of comitment , saving money and good investments.
    The main thing is , the responsability of owning , and taking care of your investments never stops , there is only one way , forward becoming a job in itself
    whereas you can just get a job , suck at it , or atleast ,be mediocre at it , no pressure , things go wrong change jobs , rent a place ,own a savings account
    that can buy your proverbial bullet and casket , and enjoy life.
    same sh*t , different smell . the real question is this : Do you want to be responsable and own things , or live peacefully and enjoy the little things ?

  • inertiaforce

    Where the hell are you getting $2,000 a month rent with a property value of only $200,000? I'm renting a condo right now to a tenant worth $600,000 and I'm only collecting $2,750 per month rent.

  • Clint Jensen

    This would typically work, but housing prices are far too high now in 2019. I'll be waiting for the next housing crisis to hit, then be ready to jump on foreclosed properties like many investors did after the crash of 2008. Even a small condo in my area would be impossible to make any money from due to the extremely high prices, I don't understand how people do it in this market?

  • Mr.B

    .. and it's 0.9,3 think about it for a sec …. that is bs , it's under ,almoust, 1percent but if the stock market makes you 3percent it means this ideea it sucks… because this is 0.9 and the market makes you 3.0 ….

  • Sahil Saini

    First of all, your video made very good sense throughout the chart.
    I would disagree with 2 points:
    1. I have to be more that lucky to get rent $2000 per month by spending $200000 on a property. Chances are 5%
    2.ROI mentions that you gonna recover money in roughly 10 years depending on the rent we are getting. I wonder thaat $50000 invested today will lose its value to $25000 in 10 years. Best could have been applying index the way banks apply on ROI

  • Patrick Pham

    Stocks is 8% and recently even higher. At 8% you could put in $5000 into an index add $830 per month. If you start in your 20s and retire at 60 you’d walk away having invested $400k pull out ~$3.5mil. Just something cool to keep in mind 🙂

    why do real estate OR stock? Do both, the strategy above is 0 maintenance, just keep tossing money into the bucket and let it grow. If you hold an index for 25 years your chance of loss goes to 0 percent. And you’d have an additional 15 to keep growing worse case scenario

  • TheTread123

    Finding cities which are making incentives to upgrade older rental property. Anyone know of them are about how to find out?

  • DMC

    But brandon we take 400$ on rental, 600$ at most, and cost of buying realestate is about 70k – 100k, in iraq, will i benefit if i do rental realestate ?

  • matt noah

    This only works if the property is rented! Got ask your self what if? What if after buying both renters move out and it’s 2 years before you can find a renter because someone just built a huge apartment complex with swimming pools cheaper than what you’re charging! So safest is to pay cash for property! 2nd safest is to save up most of the price of the property and the rest get a home equity loan on your house cause you’re debt free! So in this case you save $140,000 + $60,000 from home loan , pay cash for duplex. Finance home mortgage 120 months (10) years. Payments around 600. Put all of the rent received less $200 per month for emergencies. So $1800 a month payed off 60,000 in about 3 years! If renters move out then you simply make your house payment from your job! ! We actually pay off loan as quickly as possible staying debt free except home equity loans that we use buy our next property!

  • First Last

    What about a "turn key" duplex with an unfinished attic? Could the attic be finished and then increase the value of the house? Maybe even turn the upstairs rental unit into 3 bedrooms rather than 2.

  • zaine skyler

    I just bought a $150,000 home and my ROI is around 104.16% would love to go into depth if someone wants to talk but it is absolutely possible to make a $2,000 rent on such a low priced property

  • Warrior Clasher Omega

    it may work in the USA but it won't work in most countries especially not in India interest rate are way higher and no way of getting such high rent.

  • ncooty

    Useful tool. I build in estimates for changes over time (e.g., expected rate of increases in property taxes).

    I also find it useful to estimate rental rates for the current condition and the finished condition in order to determine whether or not certain renovations are worthwhile.

    I think the numbers used here were very optimistic (e.g., $2k rent on a $200k property; 5% interest on a property that isn't your primary residence). I suspect the main value would be in capital gains (i.e., equity), not cash flow.

  • Rodimus Prime

    You forgot to calculate the cost to replace your plumbing after they pour concrete down the toilet when you are trying to evict them….

  • gk10002000

    Lawyer on retainer for the problem tenants? HOA? You should NOT touch a HOA place especially if you have tenants. That is just a time bomb

  • gk10002000

    well glad to see him discuss the cost of money that actually goes into buying a unit. Most people that claim they make money from real estate, do so without mentioning what it cost them to buy the darn place! One could have instead put those monies into a REIT and gotten 10% dividend a year. Now is that worth it? Does one count on the unit appreciating? How about the unit depreciating? Don't forget any net income from renting the unit IS TAXABLE. His return calculation does NOT consider taxation.

  • camgere

    This is pretty good as you use addition and subtract and maybe one final divide. You don't want to scare people off with any algebra.
    Using a property manager for a beginning investor has downsides. You will never learn anything about running rental properties and tenants if you use a property manager. Worst case you may think that everything is just fine until one day the property manager says he needs $18,000 to fix up the property for the next tenant. By the close of business Friday, please. The first tenant beats up the property and it is harder to get a good tenant. The not so good second tenant messes it up even more. Since there is no reward for doing a good job (10% fixed rate), the property manager hires part time high school or college students to do all the work. They come. They go. His 30 years experience is executive talent and by definition managers don't do any actual work. That is what employees are for. Of course, the property manager can't fix anything if the rents are going down, so it sinks even worse. Property managers can lie with the creativity of tenants or small children. You have to be able to do property management yourself in order to manage the property manager. Hire property workers, not property managers. You can phone it in as easily as they can.
    Secondly, cash-on-cash Return On Investment (ROI) is like wearing rose colored glasses. In your example the $60,000 earns all the return and the $140,000 you borrowed has no return. The more leverage you use, the higher the ROI (over a certain return). While a leverage of 5 isn't that high, many banks in my area won't go under 30% or maybe even 35% down payment. CAP rate evaluates the return on the entire $210,000, so it is a good reference point when comparing two different investment opportunities.
    In 2008 people found out that levers can push both ways.

  • Christopher Wykel

    Cool and useful video. honestly though you have too many calls to action back to back and it’s off putting. Maybe spread them out a bit. Thanks for the great content.

  • alex boulos

    your analysis makes sens, however your example is bananas. No way in any market can you ONLY put 20% down and make profits at year end. If it was that easy, nobody would be renting and everyone would be buying. Rule of thumb in the real estate investment industry is a solid MINIMUM 30% down payment to MAY BE break even at year end. Also, only your interest is tax deductible. Principal mortgage payments are not and lower your overall free cash flow. On top of that, your numbers do not respect the real estate market. IF EVER you find a rental property worth $200k and that generates $2k monthly gross income, please call me, it would be my pleasure to invest.

  • Tadija Dukic

    Wait, you did not deduct montly payment for the house, down payment is only 40,000! Where is the rest of 160.000? 🤣

  • Wonder Whats Next

    When you buy these properties, would it be best to take a construction loan with the purchase to help with things thinks like rehab in box 4, then since you have a loan for that with tenants on the property, having the rent help in covering the loan costs? Seems I would rather use the banks money rather than my own outside of the downpayment.

  • Peasant

    I have questions..
    Is 3 yrd old vedio working today? Home owners insurance is $100? Probably about $260. And you didn't add property tax. So your cash flow is not accurate I think.

  • Manjesh Mahadevappa

    I don't think this is accurate. From experience I can say, you are never gonna find a property where you get $2000 monthly rent but your mortgage only works out to be $860… One'll have positive cashflow on rental properties only on certain situations
    1. When there is no mortgage on the property and getting a very high rent because tenant was stupid or got conned. I'm serious about that. Otherwise you tell me why would someone rent a house and pay double the money while they can pay only half and own the house
    2. When house converted into a hotel kind of layout and rented to multiple tenants
    3. Running short term rentals using AirBnB model so that people pay hefty amount because they are renting for very short term.

    Lure of real estate its value appreciation which is going to contribute nothing to your cashflow till you sell it off.

  • Trend Master

    Websites used in the videos:

    => Get Your FOUR SQUARE METHOD Excel Sheet
    biggerpockets.com/AnalyzeRentalProperty

    => Learn More About Rental Properties
    biggerpockets.com/Analysis

    => Live Free Webinars
    biggerpockets.com/Webinar

  • Rottevich

    amazing inspiration. you should have a look at this guy as a day in the life of a student graduate, what nexthttps://www.youtube.com/watch?v=JTTu0l2x3dM&t=69s

  • Anakia a

    By lending money to buy equity you increase national debt and increase the amount of interest charged on the valuta, you increase inflation with this scheme. ppl should be concerned that this scheme is fully legal and works as intended, Its exploiting smucks that dont understand that they are paying for the mortgages of their landlord with their rent money.

  • Twisted Throttle

    https://www.etsy.com/listing/732486089/real-estate-analysis-form?ref=shop_home_active_2
    Check out my analysis form for sale thank you

  • Dan L

    Wish I lived somewhere with a ridiculously low tax rate like that. Where I live, tax is 3x as much for the same $200K property. High tax rate states, combined with low rental rates make it extremely difficult to break into investment rental properties.

  • pakaboi77

    I'm so glad I stumbled on your channel! I am brand new at this and want to get started and this helped me way more than me researching on my own!

  • 1988acm

    The average annualized total return of the stock market (S&P500) for the over the past 90 years is 9.8 percent. I don't know where he got his information from on stocks being lower performing relative to this example.

  • Jerry Turner

    Garage income, like some areas in NY there is not parking spots most of the time so if you have a garage for more than 1 car you can probably make a good income form it.

  • AF White

    How does the ROI calculation change if you are paying cash. Specifically, 200k house, eliminate the mortgage, that increases my cash flow but also increases the upfront costs. When I calculate out the numbers I end up with a 9%. Roughly the same as if I were paying a mortgage. What are the advantages-disadvantages of paying the house in cash?

  • DeusExAstra

    If you follow this, you're almost guaranteed to miscalculate your actual return from the property. Notice he doesnt take income taxes into account, nor what parts of the expenses are deductable. You cant just take your gross revenue and subtract expenses to calculate the net income.

  • DoomFinger511

    One thing not mentioned in the video (which is important) is what is a good cash on cash ROI? Well the general rule of thumb is if you are getting between 8%-12% it's a good return.

Leave a Reply

Your email address will not be published. Required fields are marked *