Financial Analysis Summary
We now have all the data to assess the value of this property, but keep in mind that our assessment is only for the first year of ownership of this property. In subsequent years, accrued annual equity will increase, expenses may rise (with inflation), rental rates may increase or decrease, depending on the market, your tax situation may change, and a host of other factors may contribute to the return on you investment either increasing or decreasing.
While you can’t predict the future, you should extend your analysis out a couple years, using trend data or demographic data that indicates the direction of the market, inflation, etc.
For example, here is a full financial analysis of this particular property, using a spreadsheet I’ve put together to easily create a financial model for any property.
As you can see, based on the assumptions that revenue will rise 3% per year (rental rates will increase) and operating expenses will increase 2% per year (inflation, cost of services, etc), our cash flow (and our rates of return) are increasing each year as well. An even more thorough analysis would take into account things like taxation issues, where with the tax deductions you’ll likely receive on the interest portion of your loan, your return may be even better.