Don't trust THEIR numbers when you are looking at a property to invest in.
I've talked about this in a recent blog, and just want to dig a little deeper into this huge issue that many new investors encounter by actually breaking down the numbers.
Case in point...
Here was an email I received from an investing Realtor recently promoting a potential investment property.
At first, I was blown away, thinking, man, how is this property getting such amazing cash flow. My properties never cash flow this much.
Then I looked at them, and realized, they are using unicorn numbers, and I use REAL numbers.
For instance, if we were to use real numbers, this is what they would look like:
See, the cash flow went from $720, to only $113.
What's even more hilarious, is the fact that this Realtor is promoting the amazing cash flow, but if you watched one of my latest videos, "What is a good Cash on Cash Return"?, you would now know that it's not all about the amount of money you put in your pocket, it's about the actual return on your investment; the actual return on the money out of your pocket.
Which, even using the unicorn numbers for this property, is only 6.9%!
This is why you don't believe THEIR numbers.
ALWAYS USE YOUR OWN.
This way you include such things that you will incur at your property, the hidden costs such as vacancies, which I talked about in this article, and repairs and maintenance, which I talked about this article here.
As well as incorporating other costs such as property management, which wasn't included in THEIR numbers, but should always be included, because you are not going to want to manage your property forever, especially if you are going to be purchasing more properties,
This is because your time is worth much more.
Also, this Realtor also made the monthly cash flow look almost 2x as good by using a 30 year mortgage vs. a 25 year.
I'm all for putting more money in my pocket now; cash flow, but I also would like to pay off my properties as soon as possible too, instead of making the banks rich.
The extra interest you'd be paying, just by adding 5 years to your mortgage from a 25 year to a 30 year is $51K! ($227K vs $278K)
This is money that could be in your pocket.
So again, don't believe THEIR numbers!
And make sure to use the right financial calculations, so that way you don't get trapped into thinking that $720 a month in cash flow is amazing, because as you now know from using the cash on cash return financial calculation, it's not.
I'm not saying this to scare you, I'm just letting you know not to get bright eyed.
Do your analysis, compare your analysis to other potential investment properties, that can and will make a better ROI.
WHAT TO DO NEXT?
If you want to be able to run your own numbers instantly, to know whether a property is a good investment or not, and even access the benchmarks I use to determine if a property is a good investment or not, check out my Analayze All Property Program.