What is an investment property calculator?
An investment property calculator is a tool in which investment cost assumptions are entered to generate automatic calculations and predictive outcomes, to indicate if a property is a good investment opportunity.
Related: The Use of Predictive Analytics in Real Estate Investing
What does it calculate?
There are so many calculations or values that help an investor infer if they should invest in a specific property or not. Let’s quickly go over what Mashvisor calculates:
Cash Flow
This is probably the most important value investors inquire about because cash flow is an investor’s monthly profit. Think about it as an investor’s salary. Cash flow is equal to the monthly expenses deducted from monthly income.
Mashvisor’s interactive investment property calculator takes into account the following Recurring Monthly Costs: mortgage payment (principal and interest), property tax, HOA insurance, property management, maintenance, and utilities.
The calculator has a cell for “Other” Recurring Monthly Costs. Vacancy provision is a good “other” to consider. Enter between 4-8% of income. Cash flow should be positive.
Cash-on-Cash Return
This number gives the investor the returns on a property based on the amount of cash put in the investment. It is calculated by dividing cash flow by investment costs.
The investment property calculator takes into account the following investment or Startup Costs: down payment, furniture, appliances, and closing costs.
The calculator also has a cell for “Other” Startup Costs. Inspection and renovation (if applicable) are costs that should also be taken into account.
While cash-on-cash return can be calculated for a specific property by entering these values, it is also automatically presented when clicking any property or neighborhood on Mashvisor’s dashboard.
There are two average cash on cash return values given for a neighborhood – traditional and Airbnb. Depending on the location, some investment properties perform better with a traditional lease or by being listed on Airbnb.
Cap Rate
This calculation is also very important to investors because it is the purest form of understanding a property’s returns. Cap rate tells the returns of a property independent of its financing or the way it was paid for. Therefore, this number indicates the returns as if the property was already paid for.
Cap rate is calculated by dividing the net operating income by property price.
Cap rate is not on the investment property calculator but is automatically presented by clicking a property. When users are looking at several investment properties simultaneously on Mashvisor, they want to quickly know the cap rate without having to factor in the down payment or loan type that will be used.
Related: How To Do Investment Property Analysis
Filter calculations
When looking for properties on Mashvisor, these calculations can be filtered so that properties that meet the investor’s criteria appear. Cash on cash return, cap rate, budget, and rental income can all filtered to quickly find the investment properties that meet the set requirements.
What else does it calculate?
The interactive investment property calculator does not only give the returns based on what is entered, but also provides insights by using predictive and comparative data and algorithms.
When the user is entering values in the investment property calculator, the income may be unknown. Mashvisor data is able to project a property’s expected income, both traditional and Airbnb. Therefore, a user can click a property and get a breakdown of rental income, expenses, cash flow, and cash on cash return for both traditional and Airbnb strategies without even having to enter any numbers. This can then be altered by using the mortgage calculator.
But, what if an investor wants to have an understanding of an overall neighborhood? The data is able to give a neighborhood’s average median home price, traditional rental income, Airbnb rental income, Airbnb occupancy rate, and the optimal strategy (traditional or Airbnb). This means investors can search any city and quickly analyze a neighborhood, helping them to narrow down potentials areas, and bringing them closer to finding a property.
Why is it better than spreadsheets?
Investment property calculators have a couple of advantages over spreadsheets. Clearly, they save time and brainpower. Investors can spend months just analyzing different areas in order to find the best real estate markets and investment properties. Unfortunately, their research doesn’t stop there. They then have to look at comps in order to estimate costs and income to start making those spreadsheets to calculate returns. Investment property calculators do all of this work for the investor. The average values are already entered into the formulas, which means investors do not need to look at comps.
Secondly, these calculators and analyses are based on comparative and historical data, which means the assumptions are more likely to be accurate than a real estate investor’s estimates.
Finally, although this is all about numbers, there is somewhat of a human aspect to this tool. The Mashmeter gives an overall neighborhood score, grading how well the neighborhood is for real estate investing.
Related: How To Find Investment Properties Using Analytics
Investment property calculators are becoming the new go-to tool in real estate investing. They are expediting the research process and making real estate analytics easier to understand. Searching for the best investment properties can take a lot more time than one might think, start using investment property calculators to save time and motivation!