Before you start investing in residential real estate, you need to know how lucrative a certain property for sale is expected to be. There is no better way of analyzing investment properties than through the calculation of return on investment. Return on investment, or ROI for short, helps investors estimate how profitable a property will be. Most investors prefer to use cash on cash return and cap rate when calculating return on investment. But rather than perform these calculations manually, the best way to compute ROI is to use a real estate rate of return calculator. In today’s blog, we’ll talk about how to use this tool and where to find the best real estate rate of return calculator.
Related: Is Capitalization Rate or Cash on Cash Return the Better Real Estate Metric?
What Is a Real Estate Rate of Return Calculator?
With the advent of big data and predictive analytics, investing in real estate has become easier and more efficient than ever before. Before such technology, investors would spend months collecting real estate information and computing metrics using investment analysis spreadsheets. That has all changed, however, thanks to investment tools such as the real estate rate of return calculator.
The calculator, also known as a ROR calculator, is an online tool that allows investors to perform a rate of return analysis in just minutes. The tool uses traditional and predictive data based on current market trends to calculate the rate of return real estate investment metrics. It, therefore, removes the need to gather real estate data and fill out spreadsheets manually. This allows investors to spend little time calculating ROI on a rental property. As a result, investors can compare several different properties quickly, speed up the buying process (but still make a sound investment decision), and ultimately run a successful real estate business.
Where Can You Get Access to a ROR Calculator?
It’s clear that having a real estate rate of return calculator is a must. There are a number of real estate websites that provide different calculators for real estate investing. But none will offer the kind of analysis you will get with Mashvisor’s. Mashvisor is a real estate analytics software that offers investors a variety of tools that make investing simple and easy. Our tools will, for instance, allow you to search for investment properties for sale in any US rental market. In addition, you will be able to see how any property for sale will perform as a rental. And finally, the calculator will perform a rate of return analysis on any desired rental property.
Related: What Is Mashvisor? What Can It Do for Real Estate Investors?
How Does Mashvisor’s Calculator Work?
Mashvisor’s ROR calculator utilizes the most up-to-date real estate data for its analysis. In addition, it allows investors to provide input data to produce the most accurate investment property analysis. Mashvisor’s input data includes two main types. First, real estate investors must enter their financing costs. Then, they can enter any additional property expenses.
1. Financing Costs
Financing costs are significant when calculating ROI on a rental property, specifically cash on cash return. With Mashvisor’s calculator, investors can select which financing method, cash or mortgage, they plan to use for their purchase. For mortgages, interest rates, loan type, down payment, and loan amount must be manually entered into the mortgage calculator which is integrated into the real estate rate of return calculator.
2. Rental Property Expenses
Rental property expenses also play a large role in the calculation of return on investment. Using data from local real estate comps, Mashvisor will provide estimates of rental property expenses. Rental property expenses include one-time startup fees and recurring costs. The one-time startup costs include furnishing fees, inspection fees, and closing costs. Recurring costs, on the other hand, include HOA dues, insurance, income tax, and more. Although you are provided with estimates, you may want to also conduct your own research to see if you will incur any additional costs. You can then adjust any of the values and even add your own.
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What Does Mashvisor’s Calculator Compute?
After input data is inserted, the real estate rate of return calculator will compute a few different numbers. The output data includes rental income, cash flow, ROI metrics, Airbnb occupancy rate, and optimal rental strategy.
1. Rental Income
As you may know, rental income is the monthly rent a rental property earns. Mashvisor’s calculator will display the estimated traditional and Airbnb rental income of investment properties for sale based on rental comps. This is auto-generated and doesn’t depend on your own input. However, if you wish, you can adjust the monthly rental income as needed.
2. Cash Flow
The building block of return on investment is cash flow. It is defined as the difference between rental income and rental expenses. A positive cash flow property has a net positive profit, while a negative cash flow property is a net negative loss. Like for rental income, Mashvisor displays the cash flow estimates for both traditional and Airbnb rental strategies.
3. Cash on Cash Return
Cash on cash return is arguably the most beneficial ROI metric for investors who are renting a property. It estimates the rate of return on a rental property based on the amount of cash invested into the property.
4. Cap Rate
Cap rate, short for capitalization rate, is another vital ROI metric calculated by the real estate rate of return calculator. Unlike cash on cash return, the cap rate evaluates profitability regardless of property financing. It is, therefore, best suited for property comparison during an investment property analysis.
5. Traditional and Airbnb Occupancy Rate
Mashvisor’s calculator also crunches unique forms of data, such as the Airbnb occupancy rate. Airbnb occupancy rate is the number of days you can expect a property to be rented per year. Mashvisor obtains data on Airbnb occupancy from actual Airbnb rental listings, historical data, and housing market trends.
Related: What Is a Good Airbnb Occupancy Rate?
You will also get to see the expected traditional occupancy rate, which is based on rental comps in the market.
6. Optimal Rental Strategy
Deciding which rental strategy to commit to can be challenging. With Mashvisor’s calculator, however, real estate investors can accurately determine which strategy is best suitable for their investment property. Mashvisor’s calculator functions as an Airbnb profitability calculator as well so you’ll get all the needed data to compare both strategies and make a good decision.
All in all, a real estate rate of return calculator is a must-have investment tool. With it, no investor ever has to ask “How do you calculate rate of return on real estate?” Mashvisor’s real estate rate of return calculator, in particular, is a great option to consider. To get FREE access for 7 days to Mashvisor’s calculator, CLICK HERE!