An investment property calculator can make or break a real estate deal. Follow this article to learn what makes a reliable calculator!
Table of Contents
- Why Are More People Investing in Real Estate?
- What Risks Are Associated With the Real Estate Market?
- How Can an Investment Property Calculator Help You Succeed?
- Mashvisor’s Investment Property Calculator
- What Rental Estimates Mashvisor Provides
- The Bottom Line
A good property investment calculator is one of the basic tools in the field of real estate. It’s a reliable and also simple way to estimate how your money will grow if you keep investing at the rate you’re going right now. Doesn’t matter what kind of rental properties you are looking to invest in, double-checking and reevaluating will only benefit you in the long run.
Thankfully nowadays, it’s getting much easier to navigate the market without falling for rather unfavorable positions or deals. A good investment property calculator does not only provide the returns based on the information entered but also gives insights by using predictive and comparative data and algorithms. Continue reading this article to know more about this irreplaceable feature and improve your investment skills drastically.
Why Are More People Investing in Real Estate?
Investing in real estate becomes more and more widespread, and it’s easy to see why. To begin with, it’s a reliable financial backbone. Stability matters, and people care a lot about ensuring their standard of living. On average, there is at least 8-10% cash-on-cash return, depending on the type of investment. In comparison, with the stock market, the real estate market is sufficiently less risky and also provides a steady growth in home prices.
Experienced investors are able to either discover or create goldmines out of their rental properties. But as with any serious business, it requires some level of dedication and knowledge on the subject, as well as skills for applying the appropriate tools at the right time. Another prominent reason for choosing real estate investments is a mortgage. Thanks to this financial instrument, you don’t need to make a large upfront investment, which is quite convenient. All of these factors make real estate investment one of the most comfortable and reliable.
What Risks Are Associated With the Real Estate Market?
Despite all of the positive sides the real estate market has, there are also certain drawbacks that need to be considered before you decide on perceiving your property investment plans.
1. The Real Estate Market Can Be Unpredictable
With all the spontaneity of life, the real estate market can undergo really drastic changes from time to time. Although it stays relatively stable even during the most unpredictable occurrences, like the COVID-19 pandemic, such situations can also give completely opposite results.
Despite the usual growth of real estate values, you shouldn’t expect that your investment could never depreciate. A lot of factors play a role: supply and demand in a local area, the economy, demographics, interest rates, and government policies. They also affect prices and investment property mortgage rates. You can lower the risk of unfortunate investments by means of thorough research, monitoring rent estimates, and using an investment property calculator.
2. Choosing a Bad Location
Finding a great location for investment should be one of the deciding factors because it’s unchangeable and influences the value of the rental house to a great extent.
Your return on investment is highly dependent on the location of your property (tenant pool, rental rates, and the potential for appreciation). Your aim is to find the location with the highest ROI on rental property, but in order to estimate it properly, you should consider using a rental property investment calculator as it shows you a bigger picture and gives you the ability to make the most objective decisions.
3. Negative Cash Flows
The money left over after you’ve paid all the expenses, taxes, insurance, and the mortgage is called cash flow. You have a negative cash flow if the sum you are giving away is higher than the income you get from that property. Among the common reasons for negative cash flows are:
- High vacancy rates
- Costly maintenance
- High financing costs on loans
- Not charging enough rent
- Not using the best rental strategy
In most cases, you can avoid negative cash flow by spending some time researching the property.
4. High Vacancy Rates
This problem is as simple as it sounds, but you should pay extra attention. The best decision would be to look for real estate in high demand right from the start. Luckily, high vacancy rates are pretty predictable, but they still can be accidentally ignored. They get much worse if you count on rental income to pay for expenses related to your property such as the mortgage and insurance. But don’t panic yet, you have all the chances to avoid high vacancy rates by thoroughly analyzing all the information you’ve got on the property.
5. Problem Tenants
Finding reliable long-term tenants is necessary to make a profit on your purchase, but some tenants are actually turning out to be a problem themselves. They might make late payments,, trash the property, host extra roommates (human or animals) without your consent, and many other inconveniences. The only way you can partly avoid situations like this is to investigate a potential tenant’s work history and personal qualities. Make sure they have a stable income that can reasonably cover rent and living expenses and make sure they look trustworthy.
6. Hidden Structural Problems
Another pitfall where you can lose big money on an investment is the cost of repairs and maintenance. You could spend as much as $12,000 to repair a foundation or $16,000 to fix the siding. Structural repairs, or remediation for mold or asbestos, could easily cost you a fortune.
Hiring a qualified and reputable property inspector would be a great idea that could possibly save you from bankruptcy. If a problem is present, you will at least be notified about it before making a decision to buy a property.
7. Lack of Liquidity
With investments like stocks, you can always count on selling and cashing them out fairly quickly. Well, that’s not how it works with real estate. This lack of liquidity can result in you selling your property below market value or at a loss if you need to unload it as soon as possible.
There’s not much that you can do if you find yourself in such a situation, but try to think your investment over carefully. You can create a quick estimate of an investment property mortgage calculator to know whether you will be prepared for a crisis if one happens.
How Can an Investment Property Calculator Help You Succeed?
The rental property calculator gives you a good insight into all of the investments that you have made and assesses future purchases. It is crucial to analyze aspects like the downpayment, closing costs, and renovation costs, along with the ongoing costs and monetary proceeds from the property.
Calculate Mortgage Payments
Knowing how much you’ll have to spend on additional payments like mortgage, insurance, taxes and so can prevent you from the trap of negative cash flow. Selecting the mortgage option in an investment property loan calculator lets the real estate investor adjust the down payment, the loan amount, the loan type, and the interest rate. All of this data gives a clear understanding of the future cash flow depending on the mortgage details.
Get Estimates on Rental Income
There’s a 1% rule in real estate, used to estimate the potential gross income a rental property could acquire based on the purchase price. To calculate your potential rental income, multiply the monthly rent amount by the number of months in the year to determine the income from rent; after that divide the income from rent by the appreciated home value. Or you can do it using an investment property calculator, save you time and also get some helpful insights.
Estimate Cash on Cash Return
Above 10% is considered to be a good ROI, but 5% to 10% is also a normal range. Despite all the investors taking different risks, an investment property calculator will always be a good addition to the data and plan one already has. Knowing your budget and analyzing the potential return is crucial.
In calculations, the algorithm is using the classic formula that divides annual pre-tax cash flow by the amount of cash invested. So, if your estimated profits from the property amount to $20,000, maintenance costs to $5,000, and you’ve paid $100,000 for the mortgage, the cash return equals 15% (15,000/100,000).
Mashvisor’s Investment Property Calculator
Mashvisor is an all-in-one rental platform that allows users to find an investment property, estimate the revenue, and close the deal. All of the crucial factors are considered in the report, from the right location to the fairly low mortgage rates. With the help of this tool, it’s so much easier to find the optimal rental strategy.
This mortgage calculator for investment property analyzes both neighborhoods and properties. You just have to enter the most basic information about the property you are interested in and choose the appropriate filters. The tool is quick and accurate as it uses reliable traditional and predictive analytics. It is simply unmatched when it comes to saving you time and effort.
Location is the ruling factor in real estate investing. Your income and ROI quite frankly depend on it. Therefore, a thorough real estate market analysis is a must in order to locate the best-performing areas.
Mashvisor’s real estate heatmap really comes in handy here. It uses different color codes to show the performance of neighborhoods in your market of choice based on metrics such as price, rental income (Airbnb and traditional), cash on cash return, and Airbnb occupancy rate.
After you’ve decided on the desirable options, you should enter all the details into an investment property calculator. The calculator will show you the following neighborhood-level real estate data and analytics:
- Median price
- Average price per square foot
- Average Airbnb and traditional rental income
- Average Airbnb and traditional cash on cash return
- Average Airbnb occupancy rate
- Optimal rental strategy
- Optimal number of bedrooms
- Optimal property type
- Number of traditional and Airbnb properties for sale
- Walk Score
- Mashmeter Score
- Real estate comps
You’ll be able to download a full report and listings in Excel format.
Investment Property Analysis
When you are ready with your choice, you’ll need to find the most beneficial property. This will require you to analyze multiple property listings that fall within your budget and fit your investment goals to determine the best one. The neighborhood analysis will give you a good idea about the optimal property type, the number of bedrooms, and the rental strategy, so you’ll know what to focus your search on.
Mashvisor’s Property Finder will scour your target market and offer you an extensive list of rental houses that match your primary search criteria and have a high ROI.
What Rental Estimates Mashvisor Provides
Accurate estimates of one-time startup costs, and recurring rental property expenses—all of these can be found in the investment property calculator. Monthly expenses are essential in determining the potential cash flow, while start-up cost estimates will help you know your up-front investment.
The cost estimates include:
One-Time Startup Costs
- Closing costs
- Home inspection
- Furniture and appliances
- Home repair
- Property insurance
- Property tax
- Property management expenses
- HOA dues
- Rental income tax
The investment property calculator helps you analyze your possible rental income. Doing it manually is time-consuming, as you’ll need to locate rental comps in the area all on your own. It saves you time and effort by consulting readily calculated estimates for Airbnb and traditional rental income.
With the Mashvisor investment property calculator, you don’t need to calculate the potential cash flow with estimates for rental income and rental expenses, as the tool will do it for you.
Return on Investment
Calculations like cap rate and cash on cash return can be very difficult to do on your own, especially when analyzing multiple rental property investments. Fortunately, Mashvisor’s cash on cash return calculator and cap rate calculator will give you access to readily available estimates of these ROI numbers.
Moreover, there’s an in-built investment property mortgage rates calculator. You just have to provide your desired property price, loan amount, mortgage type, loan term, down payment, and interest rate.
A measure of rental demand, in general, has a huge impact on your rental income and ROI. However, estimating the occupancy rate can be fairly complicated as it depends on many factors such as the desirability of the location, property type, current market conditions, and even your marketing skills. Luckily, Mashvisor’s calculator feature will do everything for you and give only accurate information.
Optimal Rental Strategy
All of the key metrics the calculator provides go together with values for both Airbnb and traditional rental strategies. It makes the planning of the optimal rental strategy a whole lot quicker and easier. The level of accuracy of the given data also increases the reliability of your potential plan.
Real Estate Comps
In order to avoid overpaying, real estate investors need to examine recent sales of similar properties in the area. This process of manually looking through real estate comps and rental comps is a lot more convenient with Mashvisor’s investment property calculator. It provides a list of comparable properties and comprehensive information about them, so you can do your own comparative analysis.
The Bottom Line
A truly good investment requires time, dedication, and advanced skills. There are a lot of factors that matter and need to be considered in your analysis. Mashvisor’s investment property calculator is great for both beginners and professionals, as it simplifies the whole process by reducing the number of calculations that you would otherwise do manually and reduces human error.
Automation gives more space for your own analysis, without making you keep all of the data in your head. Moreover, it gives additional, sometimes even key information on the best neighborhoods and the best investment properties for sale in the US housing market, so you can estimate your abilities to the fullest extent.
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