The cap rate is one of the most commonly used metrics for analyzing the returns of a real estate investment property, making the cap rate calculator one of the best tools you could have as a real estate investor.
If you are considering purchasing an investment property, then one of the metrics that you will find yourself relying on for calculating the return on investment is the cap rate metric.
The cap rate is one of the main metrics used in analyzing real estate investment properties in general, and rental properties in particular, and investors often use it when comparing a large number of rental properties to identify the ones with the highest potential for returns.
Related: Cap Rate vs. Cash on Cash Return
However, when it comes to comparing a large number of properties based on their cap rate, the process can often be extremely time-consuming and daunting if you want to do it manually using a spreadsheet and a pen.
For this reason, most real estate investors began to rely on the cap rate calculator in order to make the process much faster and easier and to enable them to compete in markets that have a high demand and a large number of potential buyers and investors.
So, what is the cap rate metric, how is it calculated, and what’s the best cap rate calculator that you can use when investing in real estate and analyzing rental properties for becoming a successful real estate investor?
The Cap Rate Metric
The cap rate is a metric that investors use for analyzing a rental property’s return on investment based on the total value of the property.
This metric disregards the method of financing that you want to use and will rely on the income that the property is expected to generate in comparison to its total price or value to give you an idea of the return on investment that the property is projected to have.
However, what exactly does the cap rate tell you about the property?
The cap rate is a percentage-based metric that tells you the percentage of the property’s value that it will generate as income on an annual basis. Therefore, a cap rate of 10% means that the property will generate an annual income that is equal to 10% of its total value, which means that the property will need 10 years to pay for itself.
The formula that the cap rate calculator uses for calculating the metric is simple:
Cap Rate = (Net Operating Income / Property’s Price) X 100
As you can see, the formula itself is simple to calculate given enough information about the property. However, the challenges arise when you are trying to calculate this value for a large number of properties, as you will need to collect very large amounts of data and calculate the cap rate for each property individually.
Related: What’s a Good Cap Rate for Investment Properties?
The Cap Rate Calculator that Every Investor Needs
When it comes to choosing the right cap rate calculator to use, you will need to find a calculator that is part of a larger platform which includes real estate listings, analytics, and data that can be used for the calculations.
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While there are hundreds of cap rate calculators out there that allow you to enter your own values, such as the property price, its rental income, and the monthly/annual expenses, these calculators still require you to gather this data on your own before you can do the calculation.
However, a few real estate investment analysis platforms will provide you with all the data that you need to do a bulk analysis for a large number of properties. Some of them even give you pre-calculated cap rate values for the investment properties that you want to analyze.
One of these platforms is Mashvisor – a real estate analytics platform that you can use for finding, analyzing, and comparing rental properties in any market in the US. The platform includes hundreds of thousands of listings that are updated on a regular basis. Each listing on the platform will include all the info you need in order to make wise investment decisions about it, such as the listing price, rental income, and the average expenses that will apply to each property based on its location.
Related: Best Places to Invest in Real Estate Based on Cap Rate
Additionally, the platform will give you access to pre-calculated ROI metrics, which can all be modified and customized to match your specific investment strategy.
Mashvisor’s cap rate calculator is an interactive tool that is linked to each property’s expenses and cash/mortgage calculators, and any changes you make to these values will immediately be reflected on the cap rate calculator to give you the most accurate results.
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Using this, you can easily learn about the cap rate that you can expect from investing in each property, as well as compare a large number of properties based on their cap rates. By downloading an excel sheet report with all the properties that match your criteria including their cap rate values, you can easily sort the results to see what properties have the highest cap rates in the market that you’re interested in.
Bottom Line
When looking for a cap rate calculator, you should always try to find a comprehensive platform with a cap rate calculator as an integrated part of it. This is because using a cap rate calculator isn’t just about saving time running the numbers, but the most challenging part about calculating the cap rate which is gathering the necessary data about each property that you want to analyze and compare.
When it comes to that, and especially if you’re looking to invest in a rental property, Mashvisor offers you a large set of tools and features that are all interconnected to provide you with the most comprehensive and reliable experience as a real estate investor. The platform can help you in the entire process of investing in rental properties, from searching for the perfect property to analyzing it to comparing it to conducting a market analysis to see how that property fairs within that market. Mashvisor has all the tools that you need to become a successful and professional-grade real estate investor.
