Real estate can be an excellent investment – if you know what you’re doing. Beginner property investors often ask: How do I know if I’m getting a good deal? How do I analyze investment properties to make sure they’ll make money? Are my estimates for expenses and potential rental income accurate? This real estate investment calculator will help you answer these questions and more!
First of all, let’s clarify that the success of any investment property is driven by the math behind the deal. This can be complicated since there are a lot of numbers and ratios to consider. However, the 21st-century real estate investor has access to plenty of investments tools that not only make life easier but also increase the chances of success! The ultimate tool is, for sure, the real estate investment property calculator. Below is a detailed description of how to use this tool to maximize your chances of finding and investing in the best real estate properties in 2019.
What Is the Real Estate Investment Calculator?
Also known as the rental property calculator, this tool is used by property investors to analyze real estate investment opportunities and their profitability. In the most basic terms, it uses data that investors provide (such as the purchase price, down payment, closing costs, etc.) to calculate the cash flow, cap rate, annual ROI, and much more.
As a real estate investor, you can think of this tool as an investment property evaluator – it’ll give you an overview of your potential returns so you can decide if the property will make a good investment. Today, the real estate investment calculator has taken over the industry to the point where spreadsheets have become obsolete. So, without further ado, here’s how to use Mashvisor’s investment property calculator and the special features it offers.
How Mashvisor’s Investment Property Calculator Works
Say you’ve found a real estate property for sale on the Mashvisor platform and you want to see how much profit you’ll earn from investing in it. When you sign in to Mashvisor and access the rental property calculator, you’ll notice it’s made up of three sections, as this image shows.
Mashvisor’s Investment Property Calculator
The first step of using our calculator is to input numbers regarding your:
#1 Mortgage/Financing
In this section, you need to determine whether you’re buying the investment property fully with cash or with a mortgage loan. After selecting your method of financing, you have to insert the property’s purchase price. Luckily for you, Mashvisor’s real estate investment calculator provides readily estimated data regarding the property’s listing price and Redfin’s estimated selling price. All you’ve got to do is select which price you’re willing to offer or select “Custom Price” and plug in whatever price you choose to pay for the property.
The next part of the mortgage calculator applies if you’ve chosen to finance your investment property with a mortgage loan. Here, you simply specify the amount of down payment, the loan amount, loan type (15 years or 30 years fixed), and the interest rate on the mortgage. Any changes made in this calculator will immediately affect the return on investment calculations. Therefore, as a real estate investor, you can adjust or play around with these numbers to see which mortgage type, loan amount, and down payment will yield a better ROI.
#2 Expenses
The next section of the real estate investment calculator is the expenses part. Of course, owning an investment property comes with a number of expenses that affect its profitability. They include things like your operating expenses as well as your monthly mortgage payments. Real estate investors should always be up to date with these expenses to make sure that their properties are generating positive cash flow. In our investment property calculator, you have to fill in two types of expenses:
1) One-Time Startup Costs
These are the expenses that property investors pay only once when buying a real estate property. The main one-time startup costs for any property investment include:
- Inspections costs: money spent on inspecting the property’s condition before the sale
- Total repairs or renovation costs
- Furniture and appliances costs
- Closing costs: expenses in addition to the purchase price and the down payment of the property
2) Recurring Costs
These are the main operating expenses that a real estate investor will have to pay on a monthly basis or an annual basis for the rental property. The main recurring costs in Mashvisor’s real estate investment calculator include:
- Insurance
- Utilities
- Property management
- Property maintenance
- Real estate property tax
- HOA dues
- Rental income tax
The values represented in this section by default are based on the average costs and expenses for the area the property is located in. Of course, you should do your own research and modify these values and/or add new expenses that are more accurate for the specific investment property you’re evaluating. This ensures that you’re getting the most accurate and realistic results. In addition, since there are usually more unique costs associated with owning a rental property, our investment property calculator also has an “Other” field and “Add Custom Expense” for property investors to fill in as they see fit.
Related: The 6 Hidden Costs of Owning Rental Property
Mashvisor’s Investment Property Calculator Outputs
After you’ve entered in all the above numbers, the real estate investment calculator will provide you with the following outputs, or real estate metrics, which will help you determine if the real estate property will make for a good investment for you.
#1 Cash Flow
Cash flow is basically an investor’s monthly profit after the monthly expenses have been paid off (rental income – rental expenses). This is probably the most important metric that property investors inquire about since the goal of owning a rental property is obviously to make money. If an investment property doesn’t generate cash flow (positive cash flow that is), that goal is not achieved. So, you need to know the cash flow before buying a rental property to make sure you will not pay more in expenses than what you are making.
The real estate investment calculator provides a comparable rental income based on real estate comps (explained more below). This makes it possible for you to see if the property will give you positive cash flow once you enter the above-mentioned expenses. Moreover, you can then adjust this rental rate and see how it’ll affect your cash flow.
Want to know the potential Airbnb rental income of a specific property? Try our free Airbnb calculator.
#2 Cash on Cash Return
This real estate metric shows property investors their returns based on the amount of cash actually put into the investment. Thus, the cash on cash return is most important to investors who finance investment properties with a mortgage. To estimate the CoC return, the real estate investment calculator takes into account a number of variables including down payment, closing costs, furniture, and repairs. As a result, you need to input any cash you’ve invested into the calculator to ensure you’re getting the most accurate results.
Want to find investment properties that promise high cash on cash return? Use our Property Finder to find lucrative investment properties that match your criteria in a matter of minutes!
#3 Cap Rate
The cap rate, or capitalization rate, evaluates a rental property’s returns regardless of its financing or how it was paid for. Instead, it only focuses on the real estate property’s overall market value. Thus, it’s a good way to estimate your profits as if the property was already paid for. Finding the cap rate of investment properties is important for investors who are looking at and comparing several properties simultaneously as it’ll show them which one has the best potential for returns. To calculate the cap rate, you divide the annual net operating income by the property’s price.
Together, all these real estate metrics are needed to perform a rental property analysis and see how this specific property will perform in the real estate market. Based on the outputs you get, you can make your own conclusions about whether or not it makes for a profitable investment property and if it’ll allow you to achieve your goal of making money in real estate!
Related: The Beginner’s Guide to Rental Property Analysis
Special Features of Mashvisor’s Real Estate Investment Calculator
The best part about Mashvisor’s investment property calculator is that it provides you with more than just numbers! Here are additional features of our investment tool that you can’t get anywhere else:
#1 Rental Strategy Overview
The above real estate metrics will be shown for both the Traditional and Airbnb rental strategies. This will enable you to make quick comparisons and decide which rental strategy is more favorable for the property (yields higher returns).
#2 Investment Payback Balance
The Payback Balance section of the real estate investment calculator is where you can learn about the profits that the property will make (or lose) for up to 10 years in the future based on its current stats. This table will show you the amount of money that the property will generate over time as an Airbnb or as a traditional rental. Furthermore, you can switch between monthly or annual calculations to track the property’s projected performance on a monthly or annual basis. Ultimately, this allows you to see whether the investment property will be generating or costing you money.
#3 Real Estate Comps
Looking for real estate comparables in your housing market for an accurate property analysis? We’ve got you covered. As mentioned above, we provide real estate comps to give investors comparable rental income to calculate their cash flow. Mashvisor also utilizes comps to give investors an idea of whether an investment property or a rental strategy is good or not for their investment based on their goals. In simple words, we compare similar properties (both traditional and Airbnb) in an area based on the metric of your choice. You can then eliminate properties that fall below your desired standards and find the best property for your investment.
Related: How to Easily Find Real Estate Comps
#4 Insights
Mashvisor’s real estate investment calculator not only estimates the return on investment based on what an investor enters, but it also provides insights from historical and predictive analytics. These insights tell you if the market where the investment property is located is doing well. So you’re able to avoid investing in a bad location with our tool – and we all know the importance of location in real estate!
#5 Contact Agent
Last but not least, if you’ve come to the conclusion that the real estate property makes for a good and profitable investment, you can quickly contact the listing agent to make sure you get your hands on it before any other real estate investor! Or you can download a PDF report and share it with your agent.
Want to give our investment property calculator a try to see for yourself that it is, indeed, the ultimate tool for property investors? Click here to start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after!