Quick & Easy Underwriting with My Calculator: Part 4 Guide
Nov 26, 2024
Starting your assisted living business can feel overwhelming, but the right tools make it simpler! With my Assisted Living Investing Calculator, you can easily get a handle on the numbers—predicting income, expenses, and even potential profits. Let’s walk through how this calculator works and why it’s an important part of your toolkit.
Check out the video too:
Why Underwriting Matters
Think of underwriting as putting together a puzzle that shows you the big financial picture. You need to understand things like rental income, costs, and financing. The calculator makes this easier by giving you a framework to understand if an investment could be profitable or too risky. This step is crucial for choosing the right property and building a strong business.
Understanding the Calculator’s Framework
The calculator does more than just basic math; it shows how all parts of a property’s finances work together, from monthly income to potential future value. Here’s what you can look at:
- Monthly Rental Income: How much you expect to earn each month.
- Expenses: Operating costs, loan payments, vacancy rates, and more.
- Net Operating Income (NOI): What’s left after expenses are paid.
With this info, you can start seeing the whole picture of your investment’s health.
Yearly Pro Forma: Breaking Down the Key Parts
A Pro Forma is like a detailed financial plan. Here’s what you’ll find in this section of the calculator:
-
Projected Monthly Rental Income: Shows estimated income for the upcoming years (1, 5, even 25!). These estimates help you see how much you might make over time.
-
Cash Flow Analysis: The calculator gives both monthly and annual cash flows after covering all costs. You’ll see your NOI, which shows if the property is profitable.
-
Property Value Projections: Wondering what your property will be worth years down the line? This section helps estimate future property values. Remember, these are just projections, but they’re a helpful guide.
-
Invested Capital and Equity: Understand how much money you’re putting in and how it’s split between general partners (GPs) and limited partners (LPs).
-
Key Financial Ratios: This section includes important ratios like ROI (Return on Investment) and cash-on-cash return. Numbers turn green if they’re favorable, yellow if neutral, and red if they’re a warning sign.
Practical Tips to Make the Most of Your Calculator
Knowing how to use the calculator is the first step; maximizing its value is the next. Here’s how to make it work best for you:
-
Double-Check Your Numbers: Keep your data updated. Expenses and rental rates change, so accurate inputs lead to better projections.
-
Test Different Scenarios: Change up vacancy rates, expenses, or financing terms. This will show you how different factors affect profits and risks.
-
Learn from Others: Talk to other investors, share experiences, and pick up new tips. Learning from others helps you make better decisions and improve your strategy.
Final Thoughts
This calculator is more than just numbers; it’s a roadmap for making smart investment choices in your assisted living business. So go ahead, plug in your numbers, explore different scenarios, and start building a solid foundation for success!
To further enhance your investment strategy, consider downloading our Business Plan Checklist. This checklist provides a guide to creating a comprehensive business plan, which is essential for securing funding and outlining your operational strategy.
Need help figuring out where to start? Join the next Roadmap Challenge and build your launch plan with me.
Show full transcript 👇
Transcript
00:00:01
[Music] hey guys welcome back to assisted living investing uh part four now of the calculator uh i'm brandon gustafson happy to to have you on the channel today as we continue our tutorial of my calculator and kind of going through and and trying to give you kind of a line item view of of exactly how you can use the calculator whether or not you're using my calculator i hope this is valuable to you so that you know how to underwrite deals and just kind of gain a better more solid understanding
00:00:41
of what it is to underwrite a deal and how it works and and just the process that you go through and how involved it can be and what you can learn from it i am by no means any expert so please make sure that you are looking at things on your own and kind of doing your own work but i do hope that these resources are valuable to you and you might be hearing some uh thunder there in the background it's a rainy day here in salt lake city uh but it's it's a good day i love the rain so it's awesome
00:01:09
but uh we're gonna jump into the calculator make sure that you like the video ring that that bell and and so you can get notified as as i continue putting out more content uh getting out two videos a week now and uh make sure you subscribe to me or i guess follow me on on tick tock uh so that you can get those daily just kind of quick hits on on different tips and tricks and things that that i'm putting out there and join the conversation on the other uh social media platforms uh make sure you
00:01:36
subscribe and then comment down below if these videos are helpful i'd love to hear from you and see what i can do to further help you on your journey uh to get into assisted living investing i'd love to hear from you so we're gonna jump now into the tutorial um this is where we were at last time uh we were on the the tab that is looking at the calculator the projected financials calculator so we went really in depth in that so make sure you watch that video so you get a good solid understanding of
00:02:04
the brains behind this calculator and how it works today we're going to jump into the yearly pro forma so um this one might look a little bit daunting and there's just a lot of colors and things in here really you're not doing much at all on this one i'm probably just validating the data going through making sure that everything does work and and all of the work all everything that you're entering on these previous tabs the expenses and the projected financials tabs are going
00:02:31
to feed this yearly pro forma tab so this is really just a tab for you to look at and get information to help you better understand exactly what what you're doing with things so right here this is just your anticipated monthly rental income and what i've got here broken out is i've got annually um years one through five and then we break this out and we go to year 10 year 20 and then year 25 is how it's built and these are there's a there's another row up here that's hidden but they help
00:03:03
do some factoring down here below and they just have the the numbers on it so not much to see there i'm not going to unhide it for you but if as you're using the calculator um you can go ahead and do that and make any changes if you wanted to change this to a year 30 you could change the corresponding number up there and that will adjust the rest of the uh the numbers down there um but i'm not going to go through and show you exactly where everything is pulling from if you click on a cell here you can go in and
00:03:29
you can look at it and say oh this is going projected financials um cell b32 so i would come back over here to the projected financials i would go column b and then i would come down here to cell 32 so it's pulling that number right there hundred twenty six thousand three eighty one twenty five uh hundred twenty six thousand three eighty one twenty five so that's good and then these ones are actually pulling from um the factors um that are up there and just in different spots of the sheets so you can
00:03:57
always just kind of follow along with what they are this is your income these are kind of more red tinted ones are going to be different expenses and i have them broken out by kind of different numbers because it just kind of gives you a really good view of everything that's going on there it's taking into account uh the vacancy allowance that you're going to put in you know like contingency budget that we looked at here on the projected financials this 300 vacancy per bed it's kind of pulling
00:04:24
from that but those are your expenses and then up here we're going to get into this is your monthly uh projected noi so we talked about noi in in a previous video that our net operating income but you're going to notice here that this noi number is after expenses but not including the mortgage so it's taking out that debt service payment okay this is going to be your monthly cash flow after expenses the mortgage and the vacancy allowance so this line right here is taking into account this vacancy
00:04:57
allowance and your debt service um what your debt service is um i know it's on here but i'm just kind of missing it's right here um so line number seven so uh it's pulling in that so this is this is kind of your i don't know your normalize your your true noi after all of those expenses what those what that projection's gonna look like and then this is gonna be your uh yearly cash flow after all of those expenses so these are monthly numbers this is annual number um it's just
00:05:28
taking that number right there multiplying it by 12. okay and then these project out in two future years as well from here you're going to put in the this is pulling the purchase price these are looking at that asset that home value so this is that cell that we were talking about right here the initial home value it's looking at that and how it might appreciate over time and what it's going to look like so you know over a five-year period it went from 6.8 million and now it's up to you know
00:05:56
almost eight million dollars over four years so just kind of a way to project what that real estate value might look like take it all with a grain of salt those are all complete projections but you want to kind of do your research and see what it looks like so you can look at that and figure out how it works this is again just kind of your anticipated monthly loan payment and it's just pulling from up here but that based off of the the mortgage um right here this mortgage cash calculation and
00:06:23
then it also pulls in um for back here on that mortgaging uh this is your invested capital so this is the money that you're putting into the deal again this is that gp shareholder equity um or um joint venture however you want to look at it but it's kind of built off of that projected financials calculator tab the same here with the the limited partner shareholder equity and those rates right there are going to help inform some of the returns that come down here now these ones right here are different
00:06:53
ratios i name what they are here if higher is is better or negative is better so you can kind of get a feel for exactly what those are and kind of gives you a little bit there these also will tell you if it's good or bad or just kind of okay and these are actually what is called conditionally formatted so green means good if the numbers and ratios fall into a a spot where it's yellow then that means it's okay based off of this and if it's red that means it's it's bad you can set
00:07:27
these up and you can get in there and adjust them especially if you're familiar with excel and google sheets and how to go and adjust conditional formatting you're welcome to do that in your version but this kind of just gives you a an overview of what those look like i'm not going to dive into each of these ratios in this video but if you'd like me to get into different ratios and and how they work and things in another video make sure you comment down below so i can do a video around that around what
00:07:54
net profit margin is what cash on cash return is what return on assets are return on investment and i can really kind of dive into each of those things we went over cap rates in a previous video so here's here's what projected cap rate is going to look like on that there as well so getting down into here these are breakdowns of cash flows for the general partners and the limited partners again based off of these right here the equity percentages that each has what those projected cash flows are to each of those groups and
00:08:27
how they work and and things like that um and then the cumulative yearly cash flow so you can kind of get a feel for what that's looking like and then right here is property value so this is where you are kind of getting into the spot where the some of this information is a little more helpful for you um as far as tax purposes and what you might look at and how much equity you're going to have in the house how much you're paying an interest versus what you're paying in principle to your
00:08:55
loan and uh how things are how much you're able to depreciate on on the property and things like that so very helpful there um not something that you're going to share necessarily with your accountant but these are projections and let you kind of better understand you know if you're able to to depreciate 197 thousand dollars just in the real estate and you're able to depreciate 185 000 um in the interest paid like you're you're able you're writing off um you know three four hundred grand a year um
00:09:27
with just those those things there and those carry forward um this is where investing in real estate is is just awesome you're able to carry some of those things forward to you make sure you're talking to accountant talking to your accountant to make sure that you understand exactly how those work and how they impact you but it just gives you a good idea and it helps you better understand exactly how that that's going to work this one's telling you how much you have left on your mortgage payment
00:09:53
there as well the reason why this goes to 25 years is because that's how long of a term you're going to typically see especially if you're doing an sba loan there's a 25 year period um let's see down here we're getting into cumulative appreciation um the cumulative gp net cash flow per partner so how much they're making on an annual basis so this is really helpful if you're having limited partners and general partners to see what that cumulative cash flow is per partner on an annual basis and this is
00:10:27
just going to show you the net profit if you sold it so we've got into some of those things here in the projected financials they're just numbers that you want to have in there because it's going to give you an idea of what things might look like after you sell like if you sold it after one year you're taking a loss but after that you're you're making money so it kind of gives you an idea of that and that's a lot of what this is here as well so what's your net after sold your cumulative total
00:10:52
cash flow so this is all the money that you're you're making there um your your invested capital amount here so you can see it and then what your net present value is and then the lp roi um after a cell so in this case you'd probably want to wait till after year three to sell it so you could get a full return to your limited partners if you were doing a syndication on this so jump over here to the limited partner breakdown this is where you would just put in here you know invested amount uh
00:11:23
one 1.5 million the invested total the total investment amount so this is looking at you know we we said that we wanted to to go in and we wanted to the limited partners are putting in 1.5 million this right here is actually taking the sum of all of these for your different investors you can put names in here um but right here you can see we've got funding just over a million dollars we are seventy percent of the way there um so we've gotta raise another you know 500 grand on this and so
00:11:56
once i put in i think this is going to put us over the over the top of it yeah it puts us at 103 but you can kind of see exactly how that works and then you can see here this investment rate puts somebody and says okay so on the return our limited partners make three hundred thousand dollars um over the course of a year and of that three hundred thousand dollars thirty three percent of that is going to go to this investor and six percent of that three hundred thousand is going to go to this investor so
00:12:27
that's kind of how uh limited partnership break down at a super high level uh those that have worked on syndications before or anything i'm sure you could i'm sure you're just like pulling your hair out and things but just at a really super high level this is kind of how it works um and gives you a little bit of an overview of exactly what that looks like um and there's just a note around how you might set this up assisted living in my experience is um you're able to so a typical syndication
00:12:56
you're probably looking at like a 7 30 70 30 split um you might even be able to adjust a little bit higher on the gp side um with assisted living you might be able to get you know 80 80 20 or something like that what you're really hoping to do as a gp with assisted living is just give your investors a return whatever that return is you know it could be you're trying to get them a 15 return and then you're just adjusting your ratio that 80 20 split 70 30 split to match that return that your investors
00:13:26
want and the rest of that you can kind of bank on on the the gp side watch videos on syndications would be my advice to you there to get a better understanding wages so this actually is a tab that is populating the wages expense line here um in the expenses tab but you're going to put in here like this is this is your administrator what they're making and then this is hourly rates for your other caregivers and how many fte those caregivers are if they're a full fte if they're you know
00:13:58
part time uh whatever that looks like this is giving you the monthly salary rate and this is uh a workers comp projection based off of some research that i did i i feel like it's not 100 correct but it gets you in the ballpark of what workers comp might end up costing you and that one also feeds into the expenses tab here at on workers comp insurance so everything is kind of just pulling through there on this wages tab rent roll we talked about this in a previous video but this is where you're
00:14:28
getting room possibly a name what that rate is if it's occupied or not and then maybe you put something into there it's private versus medicaid and then you're able to kind of run a little bit of analysis on that and that's going to feed a feed a few things back here i can't remember exactly where it goes but it's feeding information there it's also just really good for you to see what the average bed rate is and what the potential might be as well if you were to fully occupy things
00:14:55
and then this is again just a mortgage calculator based off of off of that it's giving us property value and appreciation values as well by year which is pulling into the yearly pro forma tab and we've got something very similar here on the hard money tab so yeah that is the calculator as you can tell there's a lot of work that went into it when i started this i had no idea what i was doing i found a resource online a great multi-family calculator um and have kind of shifted that over here to assisted living so it
00:15:31
has a lot of feel of a multi-family uh investment calculator shifted to assisted living and but it's something like i i love working in excel and working with these types of tools so it's not something that scares me uh so i would love to help you out if you have questions about excel questions about different rates and ratios and how they work and and how to kind of build those things in i'd love to hear about it uh so i can kind of give you the insight that you need uh to be successful and successfully underwrite a
00:16:01
facility um make sure you comment down below if you have questions if you have comments uh if you find things that you can improve on as you download the calculator and and start looking at it and playing around with it um let me know i i i want to make sure this is a good resource for people that sells and formulas are not broken that it works well for people you can get in and you can use it and it's a seamless process but i'd love to hear from you make sure you like the video so other people can
00:16:29
find this other investors make sure you ring the bell so you get notified every time i put new content out make sure you're following me on tik tok so you can get those those daily uh quick videos on on information and and learning a little bit more about assisted living investing and how you can get involved make sure you're joining the conversation on on facebook and uh enjoy following me on twitter and instagram to get more information just kind of join the conversation i really want this to be a group that uh you're
00:16:58
able to to lean on each other and and create opportunities where you're working together i'm so happy you've been able to join me today going through uh this this very lengthy process of going through the tutorial of the calculator i really hope it's been valuable make sure you like the video so other people can find it um and uh yeah like comment subscribe i i'm happy to have you here with assisted living investing and hope to see you next time thanks for joining and have a great one
00:17:30
[Music] you
Download Your FREE Calculator
Stay connected with news and updates!
Join our mailing list to receive the latest news and updates from our team.
Don't worry, your information will not be shared.
We hate SPAM. We will never sell your information, for any reason.