Investment Property Example Using Real World Data
Today we’re going to look at an investment property example using real world numbers. The information in the article is a real world example of an investment that Kate and I bought in September of 2019.
I’m going to walk through our entire process, and show you the numbers we used to analyze this deal. Some of our steps are smoother now after having bought a few properties, so I’ll do some flashbacks to what we had to do to get to where we are now.

Basic Property Information
Kate is always checking Zillow for potential deals. She’s the one that spots the houses and says “Hey Michael, check this one out!” Then if we both like it we’ll go visit the property.
So back in the summer of 2019, Kate found a property that we both liked and so we called up our realtor and asked him to show us the place.
How did we find our realtor?
It’s nice to be able to call or text your realtor and then they get you into the house that same day, but we didn’t always have that. I’ll give you the quick story of how we met ours.
Kate had found an interesting investment property back in 2016 or 2017 and it was in our neighborhood, so we took a walk over there. There was a sign in the yard with the selling agent’s phone number. We called the number and told the agent we were new investors and interested in the house and finding a realtor.
He basically said (very nicely) we were small fish and didn’t have time for us, but he knew a young realtor that we could get in touch with. He gave us the number and we called. The realtor on the other end of that call has been working with us for over three years now!
Sometimes all it takes is a phone call where you tell someone what you’re looking for. Lots of people are willing to help new investors. Some aren’t, but don’t let those people stop you.
Now, back to the property.
Before the visit
Before we walk through the September 2019 property we always gather up some basic information. Here were the specs we knew before walking in:
- Intended use: We planned to list the property on Airbnb and other similar short term rental sites
- Location: The property was within 5 blocks of downtown (downtown is always good for short term rentals) in a location that we liked
- Asking Price: The asking price was $180,000
Of course we had also looks at the pictures of the listing before we visited and that’s what caught our interest. The house looked new and clean and the finishes were updated. Basically, we felt like we could have posted the pictures of the listing on Airbnb and it would have done reasonably well.
Before visiting, we expected to find a house that needed virtually no work. We expected only to furnish and decorate and then list the property on short term rental sites.
Visiting the potential investment property
The first thing we do when we visit the house is look at the outside. Then we walk inside and go into each room. We are very critical during our walkthroughs and look for any sign of a problem.
Looking outside the house
It’s important to get a feel for the curb appeal of the house. When people see the house you want them to be impressed. This holds true for long term rentals as well. You want your potential tenants to have a great first impression when they come to visit the house.
After judging the curb appeal, you should look around the outside of the actual house and on the roof.
You want to look at gutters and any trees over the house. Big trees over the house means leaves, leaves mean clogged gutters, and clogged gutters can lead to water problems.
Scan the outside of the house for any sign of water problems or anything (like trees) that could damage the outside of the house.
Basically, you want to be aware of all your risks for repairs and renovations.
What did we find outside?
When we looked outside the September 2019 house we saw a very clean and undisturbed house. The biggest risk we saw was a very large, dying tree in the front yard.
None of the branches were directly over the house, but we did see some branches on the roof. We assumed that strong winds were capable of blowing branches onto the roof.
We ended up having the tree removed after buying for fear of the branches causing damage to the roof.
There was no visible water damage on the house. All windows were new and in good condition. In fact, our realtor informed us that the house had been built less than two years ago.
Looking inside the house
Looking inside the house is much more involved. If there are problems outside the house, you often don’t actually see the damage until you look inside.
In my experience, dealing with water is the hardest part of owning homes. Between water constantly trying to invade your home from the outside and the joy of toilets and sewer clogs, I’ve spent more money on water issues than anything else by a huge margin.
Look at ceilings, walls and floors for any discoloration. When you see changes in color coming from corners and edges, there’s a decent chance water was the culprit.
You also want to verify that lights, outlets, faucets and toilets are working. When we walk around a house we try to write down anything that we intend to fix or improve so we can ultimately factor that into our asking price.
To be fair, you DO NOT have to spot everything. Your inspection will be your true due diligence for the shape of the home. You really just want a gut check during the walkthrough. You want to be able to have a rough estimate of how much you’ll be spending after you buy the house.
What did we find inside?
We found the September 2019 house to be in great shape. When we walked through our future investment property, the previous owners had basically moved out.
We could see holes and scuff marks on the wall. This meant we would be doing some patching and painting. Kate also thought the ceiling needed to be painted in order to brighten the main area.
There was no sign of water damage anywhere. Every room was clean and in great condition, and the electronics, lights, toilets, showers, sinks and air conditioning were all working.
We expected to basically be paying to paint walls and the ceiling. Then we would be paying to furnish the property. Beds, couches, TVs and so on.
Note: I want to be clear that we’ve bought a property in very poor condition in the past. We put over $20,000 into repairs and renovations. This particular property was in great shape, but that’s not necessarily a good indicator of whether a property is a good investment. Good condition and good investment are very different things. We’ll see soon why this property was a good investment.
Getting Our Financing In Order
We learned early on in our real estate investing careers that you should always know how you’re going to pay for a home before you actually make an offer.
One of our early offers got accepted and we ended up losing out on the property because the bank wouldn’t loan us the money to buy. So once Kate found a place, I immediately emailed our banker and asked for pre-approval.
Generally, our banker has us fill out an updated personal financial statement and they use that information to decide how much they can loan us. It generally takes us one evening to fill out and we get our approval the next day.
What if you don’t have a banker?
I want to spend a minute talking about how we got in a good position for financing our investment properties.
Like I mentioned, early on we made an offer on a house and had to back out because the bank wouldn’t give us the money. We never wanted to be in that position again, so here’s what we did.
- Got online and found phone numbers for 10 local banks
- Called every one of them and scheduled an appointment with one of their loan officers (we schedule them all on one of two days)
- Took two vacation days off work to go meet with the loan officers
- Told them exactly what we wanted to do and asked if they could help us
- Took notes
About half the bankers basically laughed us out the door. They had no interest in working with young investors who had never bought an investment property before.
But the other half were super helpful and some of them even seemed excited to work with us. Want to guess which bankers we went to when we wanted financing? Of course, the ones that seemed eager to work with us.
And guess what? The three banks that we went to asking for a loan ended up competing with each other to give us the best terms they could offer.
I believe one of the MOST VALUABLE things a new investor can do is start talking to bankers and asking for help with financing. It will give you the confidence to make offers on properties and you’ll be able to follow through when an offer is accepted.
Analysis Of Expected Revenue
Everything we’ve done so far is necessary and important, but now we’re doing the work that will determine whether we make money or lose money. If everything checks out during the walkthrough and you want to potentially make and offer, you need to do an analysis of expected revenue and expenses.
I can’t tell you how many times I’ve heard a successful investor say “you make your money when you buy.” What this means is that you have complete control over whether you’re profitable or not. And it’s up to you to decide what price you can pay for a property and still make money.
This is where we start to create the numbers we’ll use when we decide what that maximum offer will be.
We’ll start with how much money we expect the property to bring in. For us that means how much money we’ll make off Airbnb bookings.
Use of past revenue
Fortunately for us we already had two properties listed on Airbnb when we bought our September 2019 property. We were able to start out with some real world data, which is ideal.
We went back through our historical earnings and this is what we found.
- Our basement Airbnb was bringing in $1,350 per month on average.
- Our downtown Airbnb was bringing in $2,100 per month on average.
So now we have a great place to start. Since the September 2019 property was close to downtown and it was a standalone building, we expected monthly revenue to be close to the revenue from our other downtown listing.
So we can guess that the new listing will make around $2,100.
What if we didn’t have that?
If this is your first property, then you don’t have the luxury of using real world data. Or do you?
If you have a friend, acquaintance or family member who is in the business you should ask them for their real world data. And if you don’t know of anyone, then it never hurts to ask around or even take to the internet to find someone in your area who can help.
But even if you can’t get real world data, you’re not helpless.
For a short term rental like our September 2019 property, we could get on Airbnb and start looking through the listings the city where the property is. You can see the nightly rate of every listing, and you can see their calendars. If a day is marked off on the calendar, that almost always means it has been booked.
You can use pseudo real world data by comparing a bunch of different listings and guessing at how much money each one brings in. Then you can try to find listings that would be comparable to the property you’re looking at.
Finding expected revenue for long term rentals
If you’re buying to rent long term, then the process is basically the same. Really the only important number for long term rentals is the monthly rental rate. The most important question is how much can you charge on rent for the property.
Use any real world data you personally have first. If you don’t have that, then try to find someone who does and ask them if you can see their rental rates. Otherwise head to the internet and start looking at local places for rent and see what their charging. If you can find similar quality properties near the location of your prospective property then you can use that number.
Once you do that you have your monthly revenue.
Analysis Of Expected Expenses
Of course we also had real world numbers to estimate our expenses, but the nice thing is that anyone can find real world data for most of the expenses.
Here are the expenses that anyone should be able to find real world data for. I’m not sure if every city/county provides all this information, but mine certainly does.
Insurance – Every property needs insurance against unexpected damages, and some insurance companies specialize in short term rentals. You can get actual insurance estimates by calling insurance companies and asking for a quote.
Taxes – Again, every home owner must pay taxes. Not sure if this is offered everywhere, but property taxes on all homes in my county are public record. I can find the actual tax owed on any property online from the county assessor’s website.
Utilities – If you’re doing long term rental, utilities aren’t as important, but they’re very important for the short term rental. You can call utility companies and ask for their monthly high, low and average over the past year for a specific address.
Mortgage – I just google “mortgage calculator” and use the one on the results page. In my experience, the interest rate for an investment property is 1-1.5% higher than what you would qualify for on a personal residence. For example, my loan for my primary residence is 4%, and my investment properties have been 5% or 5.5% interest.
Note: we don’t actually use mortgage in our expense calculation. The mortgage is dependent on the purchase price. We actually work backwards to determine what mortgage we can afford and be profitable. We’ll come back to this.
Unknown expenses
It’s great that you can use real world numbers for most of the expenses, but there will always be some unknowns.
Repairs/renovations – You may find things during the walkthrough or inspection that you know you will fix. And you can ask for estimates from local contractors. But there will always be problems that come out of nowhere. I tend to assume around 1% of the total value of a new home will be spent on repairs every year. So a new $100,000 house will spend $2,000 per year on repairs. Older houses and houses in bad shape can cost 3-5% of the home value per year.
Vacancy – Every rental will experience some vacancy. For short term rentals this happens almost every month. We generally see about a 50-60% occupancy on our short term rentals, but you can again use the calendars shown on Airbnb listings for estimates. For long term rentals it happens when a tenant leaves or when they are evicted. I assume one month of vacancy every year.
Everything else – Not every property will share all expenses. There are going to be unique expenses for various properties and it’s difficult to anticipate everything. The way I cope with this uncertainty is by adding 10% to whatever number I land on.
Our numbers
Our total estimated expenses ended up being $850 per month. Here was the breakdown of our calculated expenses:
- Insurance – We called up a short term rental insurance company and they quoted the property at $2,091 per year or $174 per month.
- Taxes – We looked up the previous year’s taxes online and the cost was – $2,110 or $176 per month
- Internet – We got a quote from our ISP and the cost was $60 per month.
- Utilities – We found this building only used one utility company and they quoted the one year average monthly cost at $183.
- Repairs/Renovations – Since this was a new build and we didn’t see any major problems during the walkthrough, we estimated the cost at $1,800 per year or $150 per month (1% of the $180,000 asking price).
- Mowing – We pay to have our yards mowed and the average monthly cost was estimated at $60 per month.
- Everything else – At this point the total is $773 per month, so to account for unknown expenses I’ll add $77 per month (10% of total).
We’ve left out two pieces in this analysis: vacancy and mortgage. The vacancy was factored into our revenue calculation, and the mortgage will be dependent on our offer, which we haven’t determined yet.
Determining Our Offer
If you did a great job with your revenue and expenses analyses, then this is the easy part. We need to know what the expected cash flow is before we factor in the mortgage to then decided how much mortgage we can afford.
Our expected monthly revenue was $2,100 and our expected monthly expenses were $850.
This leaves $1,250 per month in positive cash flow before the mortgage.
So how do we use this number to determine a maximum asking price? Every investor will have personal investment standards, the standards they use to determine whether an investment will provide the return they expect.
Our primary measure of return on investment is cash on cash return. This is what we use to determine our maximum offer.
There isn’t a simple equation to determine the max offer because both the down payment and the mortgage payment depend on the price. I generally just play around with a mortgage calculator until I find the sweet spot.
Using a 30 year mortgage with 5.5% interest and 20% down, we found a maximum offer of $175,000.
A $175,000 purchase price would give us a little better than a 15% cash on cash return.
- Down payment of $35,000
- Loan balance of $140,000
- Loan payment of $795 per month
- Monthly cash flow of $455 per month ($2,100 revenue – $850 expenses – $795 mortgage).
- Cash on cash return of 15.6% ($455 x 12 รท $35,000 down payment)
If you’ve read some of my other articles, then you know we normally expect a 20% cash on cash return for our investments. So why did we arrive at an offer with only 15% cash on cash return?
Basically it comes down to this, we are very conservative with our numbers. We actually expected the September 2019 property to bring in more revenue that our current downtown listing. It was bigger and nicer and we intended to charge more per night.
We could conservatively expect 15% cash on cash return, but we expected to do much better. And looking back almost a year later, so far we’ve been proven right. This investment has averaged around $2,400 per month in revenue, which has put our real cash on cash return well above 20%.
The Results Of The Purchase
We actually ended up buying the house for $180,000 and asking the seller to cover closing costs. Our expected cash on cash return went from 15.6% to 14.4% on this purchase price.
But our prediction that the house would make more than $2,100 per month was spot on. At the $2,400 per month we’ve been making for the past 10 months, our real cash on cash return has been 24.4%.
But wait.
Actually, it’s been even better than that because so far we’ve only spent $1,100 to have that tree removed in the front yard. We haven’t spent any other money on repairs, renovations or unexpected costs. This means our expenses have also been lower than we expected.
When you take this into account our actual expenses have been only $745 per month.
All in all our cash flow has been a little over $800 per month. This comes our to about a 27% cash on cash return over our first year!
That’s the power of using conservative numbers. When you are super conservative your chances of losing money are very low, and it’s not uncommon to perform much better than expected.
Conclusion
This real world investment property example has shown how Kate and I use expected revenue and expenses to arrive at a purchase price that will allow us to achieve high cash on cash returns.
We’ve repeated this process three times now and while we’ve had at least a dozen deals fall through, sticking to our numbers has allowed us to create over $50,000 in cash flow in three years.
Our secret sauce is an extensive due diligence process using conservative numbers and sticking to our personal investment standards.
Happy investing.
