Analyzing a Rental Property using Brandon Turner’s Four Square Method
A short summary of a method popularized by the cohost of The Bigger Pockets podcast.
A. Divide your page into quadrants.
B. Title the first quadrant RENTAL INCOME.
- In this quadrant list all sources of rental income, including tenant rents, laundromat fees, parking, storage,etc.
C.Title the second quadrant EXPENSES.
INCLUDE:
- TAXES
- INSURANCE
- UTILITIES (Electric,water,sewer,gas)
- HOA FEES
- LAWN/SNOW FEES
- VACANCY
- REPAIRS
- CAPITAL EXPENDITURES
- MORTGAGE
D. Title the third quadrant CASH FLOW.
- Cash Flow is Income – Expenses, or
- Quadrant 1 – Quadrant 2.
E. Title Quadrant 4 CASH ON CASH RETURN.
- Also known as RETURN ON INVESTMENT.
First, calculate all monies needed to purchase the property. This includes:
- Down payment
- Closing Costs
- Rehab budget
Now Divide ANNUAL CASH FLOW BY THE TOTAL INVESTMENT AND MULTIPLY BY 100 TO GET A CASH ON CASH RETURN EXPRESSED AS A PERCENTAGE.
F. What determines a good Cash on Cash return?
- IT DEPENDS. MUST COMPARE TO OTHER INVESTMENT OPPORTUNITIES SUCH AS THE STOCK MARKET OR OTHER REAL ESTATE OPPORTUNITIES AVAILABLE AT THE TIME.
- In general, CASH ON CASH RETURN must be over 10% to probably beat the expected returns of the stock market in any given year.
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