A rental property calculator is your best friend when it comes to buying rental properties. Therefore, here are the most basic things to know about it as a landlord.
When we say a rental property calculator is your best friend, we mean it literally. Using it comes along with your real estate education, which makes it a must for you as a beginner real estate investor. In general, it is used to analyze the rental potential of a certain rental property. So, to get a better understanding of what it means, let us break it down for you.
What is a rental property calculator?
A rental property calculator is a tool that a landlord uses when buying a rental property. Real estate investors use it to analyze rental properties and estimate the rental income expected from them. It helps them decide whether a rental property is worthwhile or not.
Of course, a rental property calculator takes into consideration a few factors. It calculates the basic real estate metrics depending on location and property market value as well as the housing market trends in that certain location.
What calculations does a rental property calculator do?
As we have mentioned before, a rental property calculator calculates the most basic real estate metrics. These metrics are important for every real estate investor to know before becoming a landlord. Here are the main things a rental property calculator indicates:
Cash on cash return (CoC):
This real estate metric is used to calculate the return (in cash) on the actual cash a real estate investor has put into the property. The actual cash includes the down payment, commissions, closing fees, etc.
You should keep in mind that the cash on cash return is calculated based on the financing method since it only calculates the return on the actual cash invested in the property. So, if you have financed your property with a mortgage and put a down payment of 20%, then it will only calculate the return on the down payment in addition to other expenses paid in cash. Therefore, if you were to look for the best analytic metric for return on investment, let it be the cash on cash return.
Capitalization rate (cap rate):
Another metric that a rental property calculator calculates is the capitalization rate. The cap rate is basically the ratio you get when you divide the annual net operating income of your rental property by the value of it. However, keep in mind that it does not matter what financing method you use for your rental property. It only focuses on the overall market value of it.
The capitalization rate is usually used for commercial real estate investing purposes. It determines whether the property’s price is decent in relevance to the market trends. It also helps real estate investors set a price for their properties when they are selling.
Your number one goal is to make as much money as possible from your rental property. So, the main concept that will determine your rental income is the cash flow. When you take the rent and subtract the property expenses from it, you will be left with your cash flow. If you are left with nothing or even a minus, that is an indicator of a negative cash flow. In other words, you are not generating enough rental income.
Mashvisor’s rental property calculator
When it comes to finding the best rental property calculator, Mashvisor is the ultimate source. With us, you will you be able to get not only solid figures of real estate metrics but also other success factors.
Mashvisor’s investment property calculator will help you decide what neighbourhood has the best rental potential. It uses the historical data as well as real estate comps to tell you whether a certain area is doing well in the housing market. With our tool, you will be able to avoid an investment in a bad location.
Mashvisor’s rental property calculator will also help you decide what type of rental property to go with depending on the location as well as tell you what real estate rental strategy is the best for you. It takes into consideration the location and the type of rental property and tells you what rental strategy to go with.
Another benefit of our calculator is profitability and expenses. As you already know, the best property is the one that comes with high CoC, cap rate, and occupancy rate. Therefore, Mashvisor’s rental property calculator will calculate all these for you with a simple click on your mouse. All you have to do is insert all the data it requires, and you will have the figures you need.
How does Mashvisor’s rental property calculator work?
When looking for properties with high rental potential, our calculator uses a heat map to look for the best housing markets. This search is based on certain criteria that the investor chooses. In other words, Mashvisor’s rental property calculator utilizes the cap rate, CoC, cash flow, and return on investment in order to find you the best deals.
Now, if you are wondering whether a rental property calculator will save you the burden of running a market analysis, then, yes, it will. Our calculator performs not only investment property analysis but also real estate market analysis.
These metrics and features are all part of the investment property analysis. Why would you want to do it manually when you have one tool to do it for you?! Mashvisor’s rental property calculator is the recipe for success. So, what are you waiting for? Sign up to Mashvisor and get access to the best real estate tools to help you with your real estate investing business.