Getting Started On Your Investment Plan Using A Spreadsheet

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I have seen various commentaries on Robert Kiyosaki on TCI. Many of you point out that his Rich Dad, Poor Dad does not give enough detailed information to begin investing. This may be so, however, some of his general advise and thinking, in my opinion, are outstanding in their simplicity. If we were to poll an investor audience who has read RDPD and ask what is the foremost piece of advise, I would bet the majority would say “Buy assets”. In other words, “Buy things that put money in your pocket, i.e. things that have positive cash-flow”. To me this is the catechism of real estate investing and it may be for many of you as well.



If we were to ask “What comes in second?”, there may not be such a unanimous chorus. My vote is for making a plan. Charmingly simple! Most long-term projects have plans and achieving our financial goals is certainly a long-term project. Even if it is only a few years in duration, there are likely to be many events along the path. Rich Dad suggested that Robert write three plans—one to become financially secure, one to become affluent and one to become rich if Robert wanted to become rich. What I think Rich Dad was doing is what a project manager might do which is break up the work into smaller segments. After all, if you become rich you are very likely to pass through being financially secure and being affluent.



The method I have selected for my plan will work for all three stages. The advantage is that many of you may already have laid the foundation so it is easy to get started. I use spreadsheets for a great deal of information about properties. One of these spreadsheets I will describe.



Each row represents a property. The far left has the address or property description. There are columns for the date of acquisition, purchase price, current value, rental income (annual), initial loan balance (all loans), current loan balance (all loans), annual loan payment (all loans), estimate of annual expenses, net income (before taxes, no depreciation) and equity. I then have a row under the listed properties containing sums of these over the properties.



This was the starting point for my plan! What gave me a clue that this might work for a basis for a plan is that the information contained in the spreadsheet is essentially a snapshot in time. My spreadsheet showed the picture at the beginning of May of this year. Then it came to me in a flash! I was planning on acquiring a few more properties by the end of the year, raise a few rents, etc. why not make a spreadsheet that is a snapshot of what I think I will have at the beginning of 2004? I was overwhelmed by the intoxication of such innovation thinking, “Can the Nobel Prize in economics be in my not-too-distant future?”



I copied the beginning of May spreadsheet and placed it in the cells immediately below but left a separating row labeled “Beginning 2004”. Then I inserted the projected acquisitions, updated the range of the sums and edited current values to reflect projected appreciation and other changes. Because of the spreadsheet editing capability this was done very quickly. I then inserted rows that indicated my goals for 2004 which was to acquire more property. Example: “Acquire 3 duplexes and a triplex in Stockton”. The goals for 2004 were reflected in the beginning of 2005 section of the spreadsheet.



My plan goes out to 2010. I can easily scroll to any year. I have allowed for trades (1031 exchanges). These show up in my goals as “Trade Sonoma street for a 4-plex”. The next year has Sonoma deleted and a non-descript 4-plex in its place.



The plan contains assumptions that may not come true. I have assumed interest rates on future purchases and assumed modest appreciation. I will be doing “what if” scenarios and change some of the numbers to see how this effects strategies. For small changes my experience with this class of problem tells me that the various planned events are likely to remain sound except that they may occur at different times from the plan. So if I plan to trade a duplex in 2006 when its equity reaches $150K, if appreciation is slow the trade may be in 2009. I will be able to do spreadsheets to show actual performance and can compare against the plan. The plan tells me what I will do each year.



Should this be my entire plan? Of course not, but it is a good start. This may be a very good method for you to begin as well. It is fairly simple. Even if you haven’t made your first deal yet, you can plan for it! My format is not cast in concrete either. You may season to taste! If I hit my 2010 numbers, they look good enough that I will volunteer to have the annual TCI party at my mansion!


Comments(11)

  • brineyguy19th November, 2003

    As a soon-to-be investor currently "looking" before leaping, I have built a spreadsheet for assessing the potential profitability of various figures before I look very closely at a deal. I look at my own potential deals with a certain amount of scrutiny, in order to help weigh impact it might have on my pocketbook should I become involved.



    I am worried that I am overanalyzing, considering that I haven't made even insincere inquiries, but I do feel that I have learned a lot from the process, and I have developed a little bit of a feel for the numbers so that when I do have the reserves that I would like, I would be able to move forward.



    When I first was exposed to Kiyosaki, that was the lesson that most impacted me. Not being able to act was no excuse not to learn. I inherited an entrepreneurial longing (but not a sense of spelling) from both sides of my family, but had spent most of my life striking out on a shoestring and failing, losing valuable jobs along the way. When I got married, the need to provide a steady income seemed like the final nail in the coffin of my dreams of becoming involved in business in a meaningful and fulfilling way.



    Now I use technology, spreadsheets, business calculators, my PDA, and so on, to evaluate possibilities. I regret my missed opportunities, but not a week goes by that I don't learn something inspiring and interesting about how real estate investing and business work.



    Thanks for suggesting a new way to use these tools to further my education by building a battle plan for my eventual foray into the feild.




    • edmeyer20th November, 2003 Reply

      It is a good idea to do analysis. When you are starting out it is not so bad to over-analyze and for the reasons you have stated-- get familiar with the numbers. I also use spreadsheets for analysis of properties before making offers. My biggest concern is that the cashflow be sufficient. I usually do two levels. The first is what I call the "smell test" analysis. This is just the income less the anticipated loan payments. If it passes the "smell test", then I will do more detailed analysis with another spreadsheet.



      My reason for sharing the spreadsheet plan with TCI community is that its creation and maintenance is extremely simple and my sense is that planning may be lost in the flurry of other RE activity.

    • ram20th November, 2003 Reply

      The tools are only a means of establishing comparative value...with experience, you will discover that these only serve to validate a deal. When we are still and listen to our "inner voice", it always tells us which deals to do...no amount of financing, toolsets or advice will "make" a poor deal into a good one.

      • dougschulz24th November, 2003 Reply

        What you are describing is what professional managers call 'gut feeling' - said to be used in almost 90% of decisions. Be aware tho', it comes with experience, rather than from inner voices.

  • ram18th November, 2003

    Ditto the spreadsheet snapshot...mine evolves routinely as I incorporate scenarios under consideration as well as current balance sheet & income statement versions. Kiyosaki is quite gifted at selling sizzle, however, my assessment is that he is short on concrete ideas. Preferring to leave such details to his reader/apostles. One still has to get out there and go through numerous possibilities, eliminating the fluff and executing only on the opportunities that indeed produce positive cash-flow, net of all the real-world expenses of doing business, including vacancies and assorted contingencies.

    • edmeyer19th November, 2003 Reply

      I think that Kiyosaki's value is in strategic thinking and planning. Admittedly he leaves out details on how to do a plan. There are not many real estate luminaries that emphasize making a plan, although some have a system of investing that might be called a plan.



      I was hoping to convey the ease of using a spreadsheet in making a strategic plan. I also hoped it might be a way for someone who doesn't have one to make a start.

      • ram20th November, 2003 Reply

        The tools are only a means of establishing comparative value...with experience, you will discover that these only serve to validate a deal. When we are still and listen to our "inner voice", it always tells us which deals to do...no amount of financing, toolsets or advice will "make" a poor deal into a good one.

    • icecarvr18th November, 2003 Reply

      I have kiyosaki's choose to be rich course, in his video he says that you must look at 100 investment properties before you find 1 deal, i don't find this to be very realistic.

      He said if he was getting started in real estate and he was only working at McDonalds, he said he would adjust his spending to live on such a small income, and he said he would just go out and acquire a company or fing a group of investors, but does not expalin explicitly how to do this!

      • edmeyer19th November, 2003 Reply

        I am getting many comments about Kiyosaki which is interesting. I also have his real estate course which has a video of him and Dolf deRoos accompanying a young couple looking for their first home in Phoenix. I don't think his ratios are too far off, however, I tend to reverse the order of what he was doing on the video. I look at the numbers first before inspecting a property. Often, I make an offer without even seeing the propery. I do analyze many properties before getting one. My ratios are somewhat less than his but not orders of magnitude.

      • jjetts419th November, 2003 Reply

        I have found the Rich Dad Poor Dad series tells you to do things without the how. This series I believe is not there to tell you how but to change the way we think from thinking poor and middle cl***** to thinking rich. How we think is what we are and will be.



        Think outside the box. You do not need money to invest, but leveage and a keen sense of creativity.

  • Lufos22nd November, 2003

    This is most interesting, what you have done is utilize a spread sheet for an Air Order Of Battle. You have displayed your entry forces your future positions and movements into little boxes and cut to the essence by assigning money values where ever possible.



    It is still a Battle Plan and functions the same.You make insertions as situations change in front of you, as new forces, ie considerations occur you employ and maneuver to achieve, the overcoming of that great enemy of the merchant classes. Poverty. Interesting approach. I would say the essence of Number Crunching, but said with admiration lots of applauding. I like it!!



    Lucius. I just turned in my star for a pencil.

    • ram24th November, 2003 Reply

      One might discover that gut feeling via experience, but it's already always there, waiting, ready to direct us. RE, like most endeavors, really is quite simple, so long as we follow a disciplined process and stay within our competencies. Make the plan and work the plan...religiously...good stuff happens when continually expect such.

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