Buy-to-Let Strategy Calculator - PropMaps Results

So, you’ve set up PropMaps and run your first analysis (seethis articlefor how to set up the investment calculator), and you can see some nice-looking graphs. But what next? What do these mean? That’s what we are going to dig into today.

There are three main goals when performing this type of analysis:

1. Gain realistic expectations about what results you will achieve.
2. Test critical decisions in your portfolio to optimise your returns.
3. Stress-test your portfolio under different financial conditions to identify risks, best-case, and worst-case scenarios.

In this article, we are going to explore point 1: how you can use PropMaps to understand a realistic and most probable path for how the coming years of property investing will play out.

The last few decades have been very favourable for property investors. Individuals could jump into the market with very high leverage, excellent yields, and looser regulations and taxation. Without too much strategising, investors have been able to build up large and productive portfolios with vanilla buy-to-lets.

The market is a little different now, and recent turbulent times have resulted in landlords feeling a general sense of negativity. In my, and many other investors’, opinions, buy-to-let is still an excellent vehicle for generating wealth, but it’s more important than ever to do your due diligence to ensure that the numbers all add up. There are certainly areas one could invest in and property types that you could buy, which would mean that you’re better off investing your money elsewhere. Aside from this, I think we’d all like to know whether we are optimising how we deploy our hard-earned savings, as well as when and how we will reach our financial goals!

The results of PropMaps are displayed in the form of a graph. I’m quite a visual person, so this is what makes most sense to me, and it really helps me to comprehend how the business will grow over time.

There are selectors above the graph, and you can use these to choose which “view” of the results you would like to see. At the time of writing, there are 10 different outputs that you can select, and these combined should give you a good idea for how the configured portfolio will grow over time. Simply click the buttons at the top to navigate between views.

The first tab is pretty intuitive, and this represents the number of properties that you would own. The model acts as if it is an investor, and every month, it: (1) checks its bank balance, (2) looks at the market to understand how much a house would cost on average (when factoring in house price growth), and then (3) either buys a property, or continues to save up. You can see from this example setup how the number of properties grows exponentially as the portfolio continues to expand.

If you want to understand more about the actual numbers, simply hover your mouse over the graph, and you’ll see a summary of the figures at that point in time.

The next two tabs display the cashflow. This effectively represents the gross profit of the business, where we collect the total revenue generated from each property and then account for any costs (mortgage payments, management fees, maintenance costs). This cashflow is used to build up the pot of money which can either be reinvested or taken out of the business as profits.

You’ll notice that several of the tabs across the top are duplicated, and one of them reads: “X in todays money”. Here’s an article which will explain present value (PV) better than me:(present value), but I’ll also give you a high level sense of what this means. Each year we experience some inflation, which effectively means that the cost (in £ terms) of what we buy goes up. Instead of a pint of milk costing £1, it now costs £1.50, for example. The present value (PV) is a way of representing what the purchasing power of future money is. Just think of it as stripping out inflation, i.e. the most useful way of visualising future profits from your portfolio. There’s no point in patting yourself on the back for forecasting that you’ll be making £5k a month from your business in 20 years time, if that £5k can only buy you goods which would cost you £1k in today money (i.e. 5k is actually only as valuable to you as 1k is now because of the price of everything has inflated over time).

In my opinion, it’s useful to see both the actual amount of cashflow we will be receiving in the future, but to also visualise how much this is actually worth to me from my view of the world with todays prices in mind. If I know that I will consider myself “rich” when I’m making £5k per month from my portfolio, we can use the “in todays money” tab to see when this time might be.

The “Cash in Bank” and “Equity Release” tabs are, I would say, more like “workings out”. There’s not much of a tangible result you can draw from these, but in my eyes, it’s good to see how the portfolio is building cash up and releasing equity from the properties and then using that to reinvest. It brings life to the outputs as you can kind of see under the bonnet of how the portfolio is growing, using a combination of rental cashflow and equity release.

The jagged cashflow curve demonstrates how the bank balance grows as we collect rents, and then the sharper spikes are caused by injections of cash following a refinance. The dips in the graph are as a result of the virtual investor buying another property.

The “total debt” tab shows the combined mortgage debt across the entire portfolio. Under the “growth only” strategy, this number just keeps going up, which is simply a product of having more properties, each with a 75% (or whatever value you configured) mortgage. This is useful to see, as some people have different personal tolerances to carrying large amounts of debt.

The screenshot below is an example of choosing to explore the “growth then debt reduction” strategy. The pink line shows the total debt amount increasing, almost exponentially, as the portfolio is scaled - whereas the purple line is demonstrating an investor who hits their cashflow goals and then flicks the mortgages to repayment. The debt amount then starts reducing as the mortgages are paid down.

At some point in the future, you might want to start taking money out of the business. The “cash extraction” tab is set up in such a way that we can opt to withdraw a percentage of the business’s monthly profit. There is also the option to delay this extraction until the portfolio has reached a certain size in order to allow more growth in the early days.

Because of the delay, you’ll see a step in the “cash extraction” graph, after which you will start drawing down funds.

If you’ve configured the model with your “best estimate” values, then great, the graphs you’ve been looking at are the most realistic predictions for how your portfolio will grow over the coming years. How do the results look to you? Are you happy with where property investment is going to take you, or has it left you with a feeling underwhelmed?

The good news is that you’ve at least got a directionally accurate sense of what results you might achieve, and this can guide your decisions as to how to proceed. Perhaps these numbers look great to you - and you’re all set to kick back and let the passive income roll in from year 10, or maybe your dreams of wealth will not be met given your current trajectory. You now have more of an informed idea about what lies ahead, so that you don’t run this simulation in “real life” over the course of 10 years, and find yourself to be disappointed.

It might encourage the sense that you need to explore different BTL options: maybe vanilla buy-to-let rentals in the city centre won’t give you the cashflow required, but HMO’s might. Perhaps it’s made you think further about the possibility of doing flips, or introducing some BRRR into your plans (all features which are soon to be going live on PropMaps).

Now, although this gives you a forecast for growth, we have based this on some pretty broad assumptions about the market and about investment returns. This is where we now need to overlay some “stress testing”, where we can update the input variables to understand about how the outputs would change, given different input conditions.

That’s a really quick overview of what the PropMaps output graphs represent, but that’s just the beginning. The next article will give you more information on how we can use the mode to explore different options and what impact that will have on future growth.

Read this articlethis article if you missed how to set up PropMaps!