If you are looking for a tool to help you determine the profitability of a real estate investment property, then what you need is an investment property calculator.
An investment property calculator is a tool that can help you analyze and assess an investment property to determine whether it is a good or a bad idea to invest your money in it.
When trying to decide on the best property to invest in, there are a number of criteria to be taken into consideration, such as the location of the property, its condition, and its return on investment, among many other things.
Luckily, there are several tools and platforms that can help you assess properties based on these aspects. A market analysis tool, for example, can tell you which locations are good or bad for purchasing an investment property and renting it out. The price-to-rent ratio of the market can also give you insights about the investment opportunity of rental properties in that market.
Read: What Are the Best Tools for Real Estate Market Analysis?
When it comes to the property’s condition and the amount of maintenance that it needs, you will need to find info about the area’s average expenses for repairing the property, the type of terrain, the weather, or the age of the property…etc.
However, the most important aspect of an investment property comes down to its return on investment. After all, when you invest in a property your main goal should always be to generate profits from it.
This is where an investment property calculator becomes a crucial asset to have. An investment property calculator can tell you what your investment is worth, how much money you get out of it, and other important information that can help you make wise investment decisions and maximize your profits.
In this article, I will talk about one of the simplest and easiest tools to use for making professional-grade real estate investments: Mashvisor’s investment property calculator. This will include the different parts of the tool, how they work together, the metrics that it uses, and what you will learn from the results.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
Mashvisor’s Investment Property Calculator – The 3 Parts of the Tool
There are three major parts that any investment property calculator needs to have in order to provide accurate results:
- The cash/mortgage calculator
- The expenses calculator
- The ROI calculator
The Cash/Mortgage Calculator
The very first part of the investment property calculator is a tool that allows you to plan your finances in terms of the amount of money you will be spending to purchase the property and how it will affect your investment in the long run.
A cash/mortgage calculator is a very simple and common thing to use in any investment industry where people rely on borrowed money.
When using Mashvisor’s calculator to analyze an investment property, you will notice that the property’s price is the core of the cash/mortgage calculator. It allows you to see what the property is worth, and how much money you will be borrowing to purchase it depending on the type of mortgage, its duration, and its interest rate.
By choosing the type of mortgage, you will also be choosing the interest rate of that mortgage, which will then be inserted into the other parts of the investment property calculator as a recurring expense.
Once you’ve set your financing criteria, you will have determined a major part of the recurring expenses that will incur, as well as the amount of actual cash that you will be investing in the property.
The Expense Calculator
The expenses calculator is another very simple tool to use, but it is the one that requires the most research to provide the most accurate results.
Simply, an expenses calculator is where you can insert all of the one-time startup costs as well as all of the recurring expenses that will incur on the property (except for the mortgage payments, which will be determined by the mortgage calculator).
Mashvisor’s expenses calculator comes pre-filled with the most common costs and expenses, and the values provided are mostly based on the averages for that area, except for the property tax, HOA fees, and rental income taxes, which are gathered from the original listing’s info.
The tool allows you to modify these values as well as add/remove any of the expenses in order to get the most accurate results based on your preferences and research.
The ROI Calculator
The ROI calculator is where all the numbers come together to give you valuable insights and results.
Mashvisor’s ROI calculator focuses on providing results related to the investment opportunity of rental properties for both rental strategies (short-term rentals and long-term rentals). Meaning, you will be getting two results for each calculation, one for each rental strategy, to help you determine the rental strategy that you want to use on the property to achieve the highest returns.
This part of the calculator includes a number of values that you can modify, such as the rental income (which will be provided by default based on our predictive analytics and historical data), or the property’s occupancy rate, which we determine based on historical data or get directly from Airbnb for short-term rentals.
In addition to providing you with ROI metrics such as the cash on cash return and the cap rate, the ROI calculator is also linked to a separate table that shows you the investment payback period of the property.
This will give you an idea of the amount of money that the property will have cost/generated over time and up to 10 years in the future, as well as the point at which the property will have generated enough returns to pay back the amount of money invested in it.
Related: Buying Rental Property Calculator: The First Thing to Do in Real Estate Investing
What Metrics Does the Investment Property Calculator Use?
Mashvisor’s investment property calculator specializes in analyzing rental properties in particular. So, the best and most common metrics to use for these properties are the cap rate and the cash on cash return.
By using the tool, you can learn what the cap rate and the cash on cash return are for each property, as well as for each rental strategy that you can use on the property.
So, what exactly do the cap rate and the cash on cash return metrics mean?
The Cap Rate
Short for capitalization rate, the cap rate tells you how much money the property will generate each year based on its overall value.
The cap rate is best used when you don’t have a financing method in mind, or when you don’t know how much money you will be borrowing, which also makes it perfect for comparing multiple properties to see their investment opportunity.
This is because the cap rate does not take into consideration the method of financing that you want to use, but will calculate the return on investment based on the overall price of the property, even if the mortgage payments were included in the expenses that will incur.
The formula for calculating the cap rate is as follows:
Cap Rate = (NOI / Property’s Price) X 100
The Cash on Cash Return
The cash on cash return, or CoC, is a metric that tells you how much money a rental property will generate based on the amount of cash invested in it.
Unlike the cap rate, the cash on cash return will only account for the actual money you’ve invested from your own pockets. Meaning, if you’re using a mortgage to finance the property, the CoC return will only account for the down payment or the amount of money that you didn’t borrow, as well as any closing costs that you pay from your own money.
This makes the cash on cash return a perfect metric to use when you actually want to know the exact amount of profits that the property will generate for you over time.
The formula for calculating the cash on cash return is as follows:
Cash on Cash Return = (NOI / Cash Invested) X 100
Related: Investment Analysis Spreadsheet Has Become Obsolete with the Investment Property Calculator
Bottom Line
If you’re looking for the best investment property calculator to use and help you find the most profitable rental properties in your market, Mashvisor’s tools can be the most reliable and efficient for doing so.
Keep in mind that Mashvisor is not just an investment property calculator, but it’s a comprehensive real estate analytics platform that can help you in the processes of finding, analyzing, and comparing investment properties with its wide selection of easy-to-use tools and features.
To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.
If you haven’t already, make sure to check out our website and product to see how we can help you become a professional-grade real estate investor in the least amount of time.
