Patrick Donohoe explains how to track how a property is doing financially, especially over time.
There’s software that helps track the property over time, including ROI. It’s important to look at each property from a logical, financial sense instead of an emotional sense.
Mike: Welcome back to the flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Patrick: Hey, everyone, Patrick Donoghue here from paradigmlife.net, and I’m going to give you guys, the REI Classroom, a little tip today on what I call, keeping score.
Mike: This REI Classroom real estate lesson is sponsored by FlipNerd Investor Coaching, your blueprint to investing success.
Patrick: So keeping score is basically understanding what’s going on with your finances from a logical perspective. So being a financial adviser, and basically strategizing and consulting with people on what to do with their money, it’s really important to track, not from an emotional standpoint, but from a logical standpoint. That’s why I really see it with real estate investors, especially those that have had properties for a while. There’s this emotional connection that comes with things, whether it’s a car, whether it’s a toy for children, I mean there’s so many different examples there.
But really, the emotional side of things, you have to be cautious of it, especially when it comes to a rental property. Because if you want to buy a property for a rental property, an investment property really for the financial benefits, not the emotional benefits. Now, if you’re going to go that route, that’s totally fine, but typically, investors don’t get into properties to lose money. They get into it actually to make money.
So the understanding of a proforma, and also I would say objective software, not necessarily an Excel spreadsheet, but an objective software is going to help you really understand what you’re buying if you’re getting into a property, how to analyze it and so forth. But it’s also going to help you track it over time. There’s a good friend of mine, Jason Hartman, that I know has been on this classroom before, and he talks about the One-Percent Rule. That’s a good benchmark to understand when it comes to rental value.
So if you have a $100,000 property, $1,000 a month gross rent, that’s really kind of a benchmark. Once you start to have a property that goes up in value, let’s say it goes to $200,000, but it’s still renting for a thousand, that’s really a time where the rate of return is no longer desirable, based on the value of the property. That’s a good signal to be able to sell 1031 exchange into two properties, three properties, they have those types of measurements.
So there are a few software programs that I’ve seen out there. They’re a dime a dozen, but the ones that I’ve seen are Property Tracker, also Quicken, which is owned by Intuit which is the biggest financial software or accounting software out there these days. They have a rental property tracker now. So Quicken has one. I’ve heard it’s pretty good. I’ve never used it. Also you can resort to the traditional bookkeeper, the guy that’s going to charge you 100 bucks a month, but he’s going to reconcile, he’s going to balance everything, he’s going to keep it all organized, and really help you understand where your initial investment is, and whether you should keep it there or not.
Okay, make sure you measure, make sure you have all of your ducks in a row when it comes to the metrics associated with your money because that’s what’s going to help you build wealth and get ahead. That’s it for today. If you want to learn more about my company, my website is www.paradigmlife.net.
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