Having constructed spreadsheets since Ford was in office, I realize what goes into them. But the importance of spreadsheets is something every real estate investor should seriously review.

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Transcript:   Spreadsheets are the bane of my existence, and yet most of my clients can’t get enough of them. They love making their own, and I’ve finally gotten so tired of my clients messing with mine, I only give them out in PDF form now. I don’t care that they’re dated. Here’s what happens. I vet my own spreadsheets like I’m sure you do, as an investor. You try to get the numbers right. We all do, because we don’t want garbage in, garbage out ruling our lives. I put my own boots on the ground. I go to whatever state the property’s in. We do rent surveys. I not only do a rent survey, I have my team do a separate independent survey another day. We don’t share information until it’s done. We get the numbers right. Often times the number’s right right down to the dollar. Sometimes it has to be an estimate. Who knows what repairs and maintenance is going to be? Well, I kind of know from experience. You know? Almost four decades, if a property’s 50 versus new, okay, we can all do that, only to the extent we know the new is going to have less. But what do we put though? In the end, what I find, is that brand new properties, very well-located, and again, my definition of well-located is not only subjective, but ironically empirical, and I mean by that is, I put my 80 plus year old mom to live there alone. That equals a good quality location. All right? We’re not arguing about what’s quality. I do all the numbers, give or take the expenses and the vacancy, everything out the door that is come out of your Levis to operate that building is about 40% of the gross income, the gross scheduled income, not that you got it all. Okay? That leaves about a 60% cash to you net, and we’ll call that the net operating income. Right? Then, out of that, you pay your loan payments. Now, that’s a spreadsheet, and I can defend that spreadsheet, and so could you, until the cows come home. The problem is, there’s this pesky guy, Murphy, and he knows where we live, and he’s going to visit all of us when it comes our turn in his barrel. When he does, that spreadsheet is going to be a joke. You might as well roll it up and light your barbecue with it for all it’s going to be worth. Let me explain what Murphy’s spreadsheet is. Instead of going through all of the numbers and hitting your boots on the ground and getting your clipboard out and out there among them and getting them right, just take that gross scheduled income, that GSI, and let’s say it’s 30,000, and I came up with an 18 or 19,000 NOI, get my numbers exactly right, just take that 30,000, divide by two and say the net operating income is $15,000. By the way, when you’re actually making prognostications for cash flow, use Murphy’s, don’t use mine. Don’t use yours. Just divide by two and be happy, because if it does worse than divided by two, you’ve got the wrong property or something really ominous happened in the economy.