Use the following classic Nomad Calculator to model buying the same home ten times over ten years.

You control the assumptions for the calculations so you can see how different market conditions would affect your overall Nomad portfolio of rental properties.

Property Assumptions

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What is Nomad? Read about the different types of Nomad:

1. Catch Up Nomad - Behind on saving for retirement?
2. College Nomad - Have young kids or grandkids and want to pay for college?
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4. Legacy Nomad - Leave a legacy by helping your kids and grandkids do Nomad.

See the analysis of how this property might work with Nomad...

Expenses

These are the expenses for year 2 for the first property you purchased.

TIP: Click on Mortgage Payment in the legend to see the pie chart of expenses excluding the mortgage payment.

Value Of Homes First Ten Years

This chart shows the value of your first home over the first 10 years. Also, since we using the first house as a model for the houses you buy in years 2 through 10, it is also the purchase price of the houses you buy over the full ten year period for Nomad.

Appreciation of One Home First Ten Years

This chart shows you how much each individual house is going up in value for each year. Realize if you own multiple houses (like you would from year 2 on) you are seeing that amount per house that you own.

Debt Paydown of One Home for First Ten Years

The following chart shows how much of the debt you'll pay down each the loan of a single home for the first 10 years. It would be similar for each additional home you buy.

Cash Flow of One Home for First Ten Years

The following chart shows how much cash flow you'd have one the first property over the first ten years.

Gross Depreciation of One Home for First Ten Years

The following chart shows the gross depreciation benefit you'd have one the first property over the first ten years. This is the amount you can offset income with.

Cash Flow From Depreciation for One Home for First Ten Years

The following chart shows the cash flow from depreciation (after taxes) you'd have one the first property over the first ten years. This is based on your estimated tax rate.

Total Cash Flow (with Depreciation) for One Home for First Ten Years

The following chart shows the net total cash flow from the first home over the first ten years including the estimated cash flow from depreciation (after taxes). This is based on your estimated tax rate.

Total Cash Returns for One Home for First Ten Years

The following chart shows the total cash returns for one home for the first ten years. The columns to the left show the component returns and the orange column to the right shows the sum of the returns.

TIP: Click on the words in the legend to toggle specific components on and off.

10 Houses Over 40 Years

Previously, we were showing charts for the first house you purchase over the first ten year period.

Now, we're going to switch it up and show you what purchasing 10 houses (1 per year over 10 years) looks like. The time period we will show is the first 40 years.

If you've never seen me explain these charts before or if you need a reminder, there are a few things to be aware of.

• You're buying 1 house per year for the first 10 years. So, in year 1, you only own 1 house. In year 2, you only own 2 houses, etc.
• At the end of year 30, you've paid off the first house. By the end of year 31, you've paid off the second house.
• You don't collect cash flow on a house for the first year you own it, since you're living there in that first year. The same is true of depreciation since you only depreciate rental properties (not owner occupant properties). You do get debt paydown and appreciation in that first year.

Total Cash Returns for One Home for First Ten Years

• Year: shows you the year number for doing the plan (whether that's stocks or Nomad).
• Amount Invested: the amount you invested in the stock market or the amount you invested in Nomad including down payment and all negative cash flow.
• Stocks @ 10.00%: the value of your stock portfolio in that year including your initial investment and all the returns you've earned through that year assuming a rate of return of 10.00% per year.
• Nomad Equity: the total amount of equity for all houses at that point. It includes the down payments you've made because we calculate it by looking at the house's current value minus the current loan balance.
• Nomad Cash Flow: this is the sum of all the cash flows to that year. When we are negative, we are double handicaping Nomad for the column "How Much Better Doing Nomad" because we count it as both an "Amount Invested" and also a negative return on that investment. It doesn't matter though, Nomad is still better.
• Nomad How Much Better: Add up the "Nomad Equity" and "Nomad Cash Flow" and subtract the "Stocks @ 10.00%" to see how much better it is to do Nomad through that year.

Pro Forma Cash on Cash Calculations

Cash On Cash Return

Nomad With Lease Option Exit

What if you bought the property as a Nomad and moved in, lived there for a year then converted the property to a lease option instead of a straight rental?

If you attended our NCREIG presentation on Return On Equity, there are some significant benefits to this strategy, so let's run through the numbers for it to see how it would work with this property. I'll then link to the analysis tool with the numbers so you can consider them yourself.

Purchase

In our Nomad with Lease Option Exit model you will be buying the property for $200,000 and putting $10,000 down.

For this analysis, I usually take the price that the property is listed in the MLS and add to it the closing costs but ask for the closing costs back as seller concessions. So you'd be offering above asking price but asking for the difference back as a credit to pay for your closing costs. This allows you to buy the property without having to come to closing with the estimated additional $4,000 in closing costs.

Below I will give you a link to run your own analysis and you will see the After Repair Value be equal to the Purchase Price which is the list price plus the Seller Concessions.

Above you entered in the Down Payment % that you want to use for these calculations. That's what I'll use for the analysis. If you're doing Nomad, I often suggest you use 5% but you can model it with a range of down payments depending on your specific situation.

I've assumed that the Closing Costs will be equal to the Seller Concessions.

Since you'll be moving into the property for a year before converting it to a rental and doing a lease option, I've also assumed your Rent Ready Costs are zero. If you will have out of pocket expenses to get the property ready to live in or to rent out, you may want to consider adding a Rent Ready Cost, but in most cases this will be truly be zero.

Converting To Lease Option

You will live in the house for the first year, but around month 9 you'll start marketing the property that you'd be willing to do a "rent to own" (which is the generic term for a lease option) at the 1 year point when you've found your next property to buy as an owner occupant.

If you believe property values are going up by 3% per year, then the property at the start of your rent to own would be worth $200,000 (that's what you paid for it) plus an additional 3% (from appreciation).

If you do the math ($200,000 * 1.03), that works out to be $206,000. That is the value after you've owned it for a year and lived in it.

So, what price are you offering to the tenant buyer who will be purchasing the property from you?

I'd recommend that you tell them they can buy it from you anytime during the first year of their rent to own for 3% more than the price it was at the beginning of your rent to own.

So their option would be to buy the house for $212,180 any time during the first year.

What happens if your tenant buyers don't buy in the first year? We will increase the price by the same 3% for the next year. And if they go into year 3, we will increase by another 3%.

Your tenant buyer's purchase prices might look like this:

• In year 1, tenant buyer's purchase price would be $212,180
• In year 2, tenant buyer's purchase price would be $218,545
• In year 3, tenant buyer's purchase price would be $225,102

Rent For Your Tenant Buyer

So, what should you use for rent for your tenant buyer for their lease option?

I think it should be the higher of two ways of looking at.

Rent Calculation 1

The first way of looking at it is what would fair market rent on the property be.

You would determine this by calling a property manager and/or looking at other properties that are currently for rent that are similar to yours and seeing what they are charging for rent.

You will rarely get an exact number when doing this research, but you you're much more likely to get a range.

Typically, if you're doing a rent to own, you would be a toward the higher end of that range, but there are a lot of variables that could affect it like the condition and location and time of year.

Rent Calculation 2

The second way of looking at it is what would the tenant buyer be paying if they got financing on the property given their down payment, credit score and expected interest rate.

With some basic assumptions, this can be calculated if we make some assumptions and so I will. In fact, I will use this number when I link to the analysis tool that allows you to do your own calculations, but if the rent would be higher, it is my belief that you should use that.

As a side note, there are some advanced strategies for setting rent on the property that I won't cover here.

Assumptions

Here are some of the assumptions. In the first year, the tenant buyer will be buying the property for $212,180.

When you offer someone the opportunity to buy a home from you by a lease option, you usually get an upfront option fee that gives them the right to buy the property from you. Usuaully, this option fee is credited to the tenant buyer as part of their down payment when they exercise their option to buy, get a loan from the bank and ultimately buy the property from you.

Typically (and the way I recommend you structure it), if they do not buy, the option fee is yours to keep.

I am suggesting you collect an option fee up front before they move into the house. So, how much?

The short answer is: as much as possible. The more you collect, the more security you have that they will take care of the $212,180 asset that you loaning to them. The more you collect, the more likely they will be to actually buy the house from you (which is what you want).

While you may be able to get more--and in some cases much more--I will assume that you are able to get 3% down. I think this should be the absolute minimum you'd let someone do a lease option with you for. I'd really like to see at least 5%, but when I link to the analysis, I will use 3% to be conservative.

A 3% option fee of $212,180 is $6,365.

If they buy the property from us, we will credit them the full $6,365 toward their purchase. Which means they'd be borrowing the purchase price which is $212,180 minus the option fee we're crediting back to them which is $6,365.

That means they are borrowing $205,815.

What interest rate are they able to get in a year or two from now with less than perfect credit? You are suggesting that the interest rate that you are able to get right now with good credit is 4.5%. I suspect that their interest rate might be a little higher. Let's call it a half percent higher because rates are probably going up and their credit is less than perfect (or they'd be getting a loan now instead of doing a rent to own with you). So, their interest rate might be 5%.

So, what monthly payment would that be? If we use a loan amount of $205,815 at an interest rate of 5% that means their payment would be $1,104.86 plus estimated taxes on their purchase price, plus estimated insurance on their purchase price, plus estimated HOA in 3 years.

That works out to be $1,293.52 and that's what I'll use for a rent estimate.

Catch Up by Paying Off Houses

Catch Up by Paying Off Houses