Trying to buy an investment property but it’s making you feel a bit aggressive? You’re reading this blog, so it must have something to do with your passive income investing escapades! Are you finding it difficult to manage your investment without being there? Before you go pulling your hair out from all the frustration, read on to get all the tips you need to help you with turning your aggression into passive real estate investing.
What Is an Investment Property Calculator?
First things first, get your investment property calculator ready. What is that, you ask? A real estate investment calculator, also known as a rental property calculator, is a calculator that does all the investment math for you. To put it in more scientific terms, this calculator is a real estate tool into which investment cost assumptions are entered. It generates automatic calculations that indicate if the desired property is a good opportunity. It calculates things like cash flow, cash-on-cash return, cap rates and provides property investment insights- an excellent companion for those interested in passive real estate investing.
Cash Flow
Money talks, we all know that. Cash flow is the percentage of your investment that is returned every month. It’s the total profit you see at the end of the year from the property. In manual mathematical terms, you need to subtract the total expenses from the total income to obtain this value.
Cash on Cash Return
Cash on cash return describes the value of a return on investment. Let’s say you invest $100k and get $1k per month in rent after mortgage and expenses. That would mean you’re getting a 12% cash-on-cash return, which is a great return on investment. Investors usually aim for a cash on cash return value ranging from 8-12%. For some people, this metric is enough if they plan on keeping the property forever. It is a way for you to keep tabs on your property, a way to know if buying this investment or keeping it is a good idea or not.
Capitalization Rate
The capitalization rate, or cap rate, is not to be confused with the cash flow. You can use this particular metric to determine how much a property is worth. That requires taking into account things like vacancy, credit losses, insurance, taxes, other income, and operating expenses. This rate is the projected net annual income divided by the current value of the property. The formula results in a percentage which tells you how much profit you can expect per year. So if a rental property costs $120,000 to purchase and the expected net monthly income from rentals is $1,200, the expected annual capitalization rate is:
($1,200 x 12 months) ÷ $120,000 = .12 or 12%
Operating Expense Ratio (OER)
How do you know how much a rental property will cost you to operate? First, you add all the day-to-day operating expenses–insurance, landscaping, maintenance, utilities, taxes, management fees, etc.–but you should leave out any mortgage repayments or capital improvements. Then, divide the total operating expenses by your potential rental income. Obviously, the lower the OER, the more profitable the property!
Click here to learn more about Real Estate Vocabulary.
Passive Real Estate Investing
Like any other investment, real estate is a business that you should be sure will give you a great cash return. Once you figuratively have that in your pocket, you’re ready to start preparing for the best real estate investments you can find. Before we discuss how to make money in real estate with passive real estate investing and the investment calculator, let’s go over what this investment strategy actually is.
Active vs. Passive Real Estate Investing
In case you were wondering, yes, there is an active to the passive. Unlike passive real estate investing, active investing requires the investor to actually be on-site to manage the property being rented out. It’s definitely not for the faint of heart, as it requires a ton of work and effort. Active investors are present through every step of having a property up for rent, so that includes being there to hear complaints from tenants to even fretting over maintenance and fix-ups on their own. Through active investing, real estate investors maximize their profit by being able to control everything.
If you’re not prepared for that kind of commitment, then passive real estate investing is definitely the path for you. Becoming a passive investor means someone else is taking care of all the hassle of running an investment property for you. So you get to sit back, relax, and watch the passive income come pouring in.
Related: What Are the Best Passive Income Investments in the Real Estate Market?
Buying an Investment Property
Now that you know what the best option is for you, it’s time to figure out the best income strategies, as well as the real estate investment strategies, which will help you on your path to becoming a passive real estate investor.
To start, check out Mashvisor’s rental property calculator. It’s the most efficient way to make faster and smarter real estate investment decisions. It provides you with the informative figures and the analysis. You can also use this tool to check out competition and the best neighborhoods. It is the perfect tool for a passive investor. Why? Even if someone else is left responsible for managing your investment property, you still want to ensure you have the best one to make passive income. The easiest way to do this with minimum effort for passive real estate investing? You guessed it- the real estate investment calculator. So click here to get started.
Related: Where Can You Find a Rental Property Calculator?
If you choose passive real estate investing, finding the perfect rental property can be quite an ordeal. With the investment property calculator, you can decide which property will give you the most passive income. The calculator performs real estate market analysis and investment property analysis for you. You can use that information to determine if your property investment is worthwhile with minimum effort- that’s what the first step of passive real estate investing is all about!