/personal-cfo

Calculators — formulas this skill uses

All formulas are documented inline so the math is auditable. Round to whole dollars in output; carry full precision internally.

Mortgage monthly payment (P&I)

Standard amortization formula:

M = P × [r(1+r)^n] / [(1+r)^n − 1]

Where:

• M = monthly P&I payment
• P = principal (loan amount = purchase price − down payment)
• r = monthly interest rate (annual rate / 12, as decimal)
• n = total number of payments (years × 12)

Example — $680K loan at 6.5% for 30 years:

• P = 680000
• r = 0.065 / 12 = 0.005417
• n = 360
• M = 680000 × (0.005417 × 1.005417^360) / (1.005417^360 − 1) ≈ $4,298/mo

Add property tax (annual / 12), insurance (annual / 12), and HOA on top for PITI (Principal + Interest + Tax + Insurance).

Effective rental income (vacancy-adjusted)

Effective monthly rent = Gross monthly rent × (1 − vacancy_rate)

If property management:

Net monthly rent = Effective × (1 − pm_fee_pct)

Net monthly housing cost (per scenario)

Net monthly = PITI
            + utilities (owner-paid portion)
            + HOA
            + monthly_maintenance_reserve  (annual maintenance / 12)
            − net_monthly_rent (all units, summed)

Negative result = positive cash flow.

Renovation amortization

For comparison purposes, amortize one-time renovation costs over the time horizon:

Monthly renovation amortization = total_renovation_cost / (time_horizon_years × 12)

This converts a $108K upfront cost into a comparable monthly figure (over 10 years, that's $900/mo of "renovation rent").

Don't conflate with mortgage — renovations are paid in cash (or via a renovation loan, which adds a separate payment).

Mortgage interest deduction value

Annual interest paid year 1 ≈ P × r  (rough — actually slightly less due to amortization)
                              ≈ $680K × 6.5% = $44,200 first-year interest

Deduction value = annual_interest × marginal_federal_tax_rate
                ≈ $44,200 × 0.32 = $14,144/year of tax savings

Caveats:

• Only valid if itemizing exceeds standard deduction
• 2017 TCJA capped mortgage interest deduction to first $750K of debt
• SALT cap ($10K) limits property tax deduction
• These rules expire 2025 — verify current law before acting

Depreciation (for rented portion of the property)

If renting part of the property (ADU, bedrooms), the rented square footage's portion of the building basis depreciates over 27.5 years.

Building basis = purchase_price − land_value  (land doesn't depreciate)
Rented fraction = sq_ft_rented / total_sq_ft
Annual depreciation = (building_basis × rented_fraction) / 27.5

This depreciation is deducted against rental income — can produce paper losses that offset other income (up to $25K for active management, phased out above $100K AGI).

Caveat: depreciation recapture at sale at 25% — not free money, just deferred.

This is the messiest part of the math. Default to surfacing it as an estimate and flagging "verify with accountant."

Cap rate (return on investment, simplified)

Cap rate = (Net annual operating income) / (Purchase price + closing + renovations)

Where NOI = rent collected − all operating expenses (not including mortgage P&I).

Rule of thumb: ≥8% cap rate is good for residential. <4% means you're betting on appreciation, not income.

Cash-on-cash return

Cash-on-cash = (Annual pre-tax cash flow) / (Total cash invested)

Where cash invested = down payment + closing + renovations + reserves.

A house-hack where you live in a unit + rent others: cash-on-cash often higher than pure investment property because you also save on rent you'd otherwise pay.

Equity build-up (over time horizon)

Two components:

Equity year N = Mortgage paydown by year N + Appreciation by year N
              = (P − remaining_balance_year_N) + P × (1 + appreciation_rate)^N − P

Default appreciation: 3%/yr (conservative; long-run US average is closer to 3.5–4% nominal).

Opportunity cost (vs S&P alternative)

Alternative wealth at year N = cash_invested × (1 + 0.07)^N
                              (using 7% real return — long-run S&P average)

Compare to equity build-up + cash flow to see net financial benefit of the property.

This is the most important number for "should we buy at all" decisions. If the property barely beats S&P + 7%, the lifestyle benefits matter more than the financial ones.

Sensitivity analysis variables

For each scenario, surface what happens if:

Surface the 3 variables the scenario is most sensitive to — these are the ones that flip the decision.