If you’re new to real estate investing, you may be wondering how to figure a lot of different numbers – and you’ll certainly want to know how to figure investor pay out! We give you some DIY advice from BAM founder and CEO, Ivan Barratt, to help you get more comfortable learning an important fundamental skill of the industry, in today’s BAM Blog…
So You’re Looking for a Calculator
It makes sense, you’re used to finding all sorts of plug-and-play calculators on the web, whether it’s what you’ll pay for a house or a new car, to what you have to eat (or not eat) to drop a few pounds, there are plenty of calculators online. When it comes to real estate investment payout, though, you might just want to take Ivan’s advice and stop looking for something to do the heavy lifting for you. There are a couple reasons: it isn’t that heavy for one, and it’s good to learn how to work the numbers and get comfortable figuring pay out yourself.
Learn How to DIY
If you’re looking for something so you can input Investor A invests $X and Investor B invests $Y, and factor in the management fees, etc so that you’ll receive a tidy number by hitting a button, Ivan has a suggestion for how to simply figure it yourself.
Ivan recommends instead using Excel and learning to do this calculation on your own. Rest assured, it isn’t as hard as the above story-problem makes it sound. Ivan says that by doing it in Excel and learning how to get the numbers, you’ll also be gaining a real understanding of how the waterfall pays out. This is one of those times when you should just give it a try! Never fear, there’s a quick example of a simple waterfall here:
After all expenses and reserves, invested dollars get a pref return of x% annualized (annual return in dollars divided by 365, x number of days in the period). Then, they get x% split of any remaining cash!
The BAM Bottom Line: Much like anything else in the industry, the more you know the better off you are. By forgoing looking online for the numbers, learn how to figure the waterfall yourself so you truly understand how it pays out.
Want more great advice from Ivan? Head over to ivanbarratteducation.com. Ivan has created an entire website filled with his years of industry knowledge and experience. You’ll find a free video and blog library, featuring Ivan’s tips and easy-to-follow explanations about multifamily investing.