Searching for an investment property to buy can be a dreadful task. With all the information real estate investors have to analyze in order to find the best real estate investments, the process becomes time-consuming and requires a lot of effort. Alternatively, with today’s technology and resources, this task has become much simpler thanks to the investment property calculator. In this blog, we will show you how to use Mashvisor’s investment property calculator to become a better real estate investor.
What Is an Investment Property Calculator?
An investment property calculator, also known as a rental property calculator, is an important real estate investing tool that calculates essential real estate metrics that every real estate investor needs to succeed in this business. Basically, an investment property calculator tells you whether you should invest in a given property, neighborhood or even city. As a real estate investor, you can narrow down and filter available real estate investment opportunities to match your needs and preferences.
Using an investment property calculator is not obligatory for real estate investors. However, using one, like Mashvisor’s, would make things a whole lot easier by saving your time and effort. Not just that, but this tool actually revolutionized real estate market analysis as it can use predictive analysis together with historical data to advise you on which rental strategy better suits a certain location or investment property.
What Does an Investment Property Calculator Do?
When it comes to real estate investing, there are many tools that help investors decide whether they should invest in a property or not. Mashvisor’s investment property calculator provides the following tools:
1. Cash Flow
Cash flow is an important indicator in investment property analysis. It basically tells you how much monthly profit to expect from a rental property. Cash flow is simply calculated by deducting monthly expenses from rental income. Mashvisor’s investment property calculator takes into account various recurring monthly costs to provide you with an accurate cash flow analysis. Such costs include mortgage payments, property tax, insurance, maintenance costs and property management. Additionally, you can add other costs such as vacancies.
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Always opt for investment properties with positive cash flow. This way, you won’t be reaching into your own pocket to cover the investment’s expenses. This doesn’t mean you should totally avoid negative cash flow properties. If you are really interested in such a property, follow our guide on how to turn any real estate property into a positive cash flow investment here.
2. Cash on Cash Return
Cash on cash return is a return on investment (ROI) metric that measures returns based on initial cash invested when buying an investment property. To calculate cash on cash return, divide net operating income by cash invested. Mashvisor’s rental property calculator includes various investment costs besides the down payment such as commissions and closing fees.
The cash on cash return calculation varies according to the financing method since it only calculates returns on cash invested. Successful real estate investors always advise aiming for a high cash on cash return. However, it is also important to consider other factors and indicators.
3. Cap Rate
Cap rate is another return on investment indicator that helps real estate investors evaluate the performance of their investment and it can be used as a benchmark when buying an investment property. Cap rate is simply calculated by dividing net operating income by the property’s price. Because the cap rate calculation is independent of the financing method, it is considered the purest form of return on investment.
Generally speaking, high cap rates indicate a higher net operating income and therefore real estate investors prefer high cap rates over lower ones. A good cap rate normally ranges between 8-12% but to say exactly what is a good cap rate is difficult and subjective to the location of the investment property.
Why Should You Use an Investment Property Calculator?
Using an investment property calculator is the best way to get accurate results when conducting an investment property analysis. Mashvisor’s platform is constantly updated with recent real estate data. Therefore, it provides real estate investors with more accuracy when compared with traditional analysis methods like spreadsheets.
Moreover, a valuable feature of Mashvisor’s investment property calculator is the property finder feature. When looking for real estate investment opportunities, you can filter the results according to your investing criteria like your budget and the physical features of the investment property. This unique tool will then return properties with the highest ROI in that location for you to choose from.
In addition to all that, Mashvisor’s investment property calculator goes a step further by providing you with return on investment indicators for both traditional and Airbnb rental strategies. Cap rates and cash on cash returns for the two rental strategies come from mashing historical real estate data with our predictive analysis algorithms. Another useful tool to use alongside Mashvisor’s investment property calculator is the heatmap analysis tool. This tool allows investors to find investments on a map that ranks neighborhoods according to different metrics.
The Bottom Line
Using an investment property calculator will definitely make your job easier when buying an investment property. For the reasons stated above, we can conclude that a real estate investor can never go wrong while using an investment property calculator. This must have tool is your easy way to get rich in real estate.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.