tag:blogger.com,1999:blog-228221362011-04-21T20:04:11.753-07:00All you ever wanted to know about the numbers behind real estate.Charlesnoreply@blogger.comBlogger111100tag:blogger.com,1999:blog-22822136.post-1142664827893778682006-03-17T22:38:00.000-08:002006-03-18T09:35:50.203-08:00

By playing around with the spreadsheet that we built, we will soon notice that a very important factor in the decision should be the appreciation rate. It is also the most difficult parameter to estimate. Think about it. You know the interest rate - just go ask the bank what you can get. You can easily find out the property tax rate - just make sure you put in the right one based on what

Charlesnoreply@blogger.com1tag:blogger.com,1999:blog-22822136.post-1142316839517047802006-03-13T19:45:00.000-08:002006-03-18T09:05:43.780-08:00

We will now try our hand at the age-old question - whether to buy or to rent. First of all, keep in mind that this is a very basic analysis. Most importantly, it assumes that you only have two options - to rent for 30 years, or to buy a house and keep it for 30 years. A lot of calculators online make similar assumptions. This assumption makes the analysis much easier, but in the end, rather

Charlesnoreply@blogger.com0tag:blogger.com,1999:blog-22822136.post-1142110700701423832006-03-11T11:49:00.000-08:002006-03-12T14:32:34.556-08:00

Now that we can calculate premiums, and understanding the inner workings of a loan, we can look at the bigger picture, and analyze the cash flow of buying a house. Granted, the loan and the down payment are a major factor in your overall cash flow, but there are others. The spreadsheet below illustrates how costs are incurred over time.Property tax. That's right, if you have property, you

Charlesnoreply@blogger.com0tag:blogger.com,1999:blog-22822136.post-1141962224978224762006-03-09T19:26:00.000-08:002006-03-10T22:45:33.953-08:00

If you understood everything that was going on in the toy problem, it will be quite easy to extend it to something more realistic. First, reserve a cell to contain the number of years, and change the 5 in your premium calculation to the value of that cell.The next thing you have to do is to make the box below bigger, so that it covers 30 years. That's it! Now you have your own loan calculator

Charlesnoreply@blogger.com1tag:blogger.com,1999:blog-22822136.post-1141804452919359492006-03-07T22:12:00.000-08:002006-03-09T19:00:08.176-08:00

There is an article on Yahoo Finance today by David Bach, who is rather optimistic about the current real estate market. I think he was trying to sell his book. I haven't read the book, and from his arguments in the article, I can't really recommend it, either.The aim of this blog is to look at facts objectively. The author bases his claims on five arguments below, to which I will add some

Charlesnoreply@blogger.com0tag:blogger.com,1999:blog-22822136.post-1141713588631232892006-03-06T21:33:00.000-08:002006-03-09T20:40:24.743-08:00

If you did the example in the previous post, you will soon find yourself grumbling to yourself, "There has gotta be a better way to get the premiums". That's right. Trial and error is great for illustrative purposes, but we can accomplish the same thing with a little bit of math.In one of our earlier posts, we talked about evaluating cash flows by taking the present value. We will use that

Charlesnoreply@blogger.com0tag:blogger.com,1999:blog-22822136.post-1141011152462902792006-02-26T18:19:00.000-08:002006-03-06T21:33:11.276-08:00

My advisor once said, "If you want to end up with something large that works, always start off with something small that works, instead of something large that doesn't work."So let us start off small. Forget about 30 year loans with monthly payments. For this example, we are going to deal with 5 year loans with annual payments.First, let us put down the amount of your loan and the prevailing

Charlesnoreply@blogger.com1tag:blogger.com,1999:blog-22822136.post-1140762149796978642006-02-23T21:57:00.000-08:002006-02-26T18:18:24.853-08:00

That is it for the fundamentals. Now let's do something more fun ( and useful ). I am going to show you how to build your own loan calculator! All you need is MS Excel ( any version will do ), and you're ready to rock and roll. You don't have to be an expert at Excel, as I will try to go through the process in as much detail as I can. If you have difficulty following the steps below due to

Charlesnoreply@blogger.com0tag:blogger.com,1999:blog-22822136.post-1140592412747417832006-02-22T23:00:00.000-08:002006-02-26T17:15:45.206-08:00

Now we are ready to evaluate and compare different cash flows, or multiple payments over time. What does that have to do with real estate? Lots! Taking out a loan for a house means that you will be making multiple payments for years to come. How do those guys actually figure out how much you should pay every month? Also, ever wondered whether it is better to buy than to rent? Sure, there

Charlesnoreply@blogger.com0tag:blogger.com,1999:blog-22822136.post-1140671870191826172006-02-22T20:52:00.000-08:002006-02-22T21:40:40.260-08:00

Ok, so let us assume that the interest rate is 5%. If we put $1000 in the bank, how much will we have in a year? We will have $1050. Yippee!So, at an interest rate of 5%, $1000 today is the same as $1050 next year. We can get to this number by doing the calculation below.Now let's turn the problem around. How much is $1000 next year worth today? At an interest rate of 5%, what is the amount

Charlesnoreply@blogger.com0tag:blogger.com,1999:blog-22822136.post-1140629904132606482006-02-22T09:37:00.000-08:002006-02-22T09:39:39.203-08:00

Interest. Now that is a powerful word. A huge portion of finance theory is built on top of this single concept alone. Simply put, interest is how much your money grows over time. Put $1000 in the bank, and in a year, you will have perhaps $1020. That, is because of the interest your $1000 earned, and not because the bank likes you.But wait! There is more! Interest is also what makes money more

Charlesnoreply@blogger.com0