What is a rental analysis calculator and where do you find the best one in 2023? We’ll answer this important investing question in this article.
Table of Contents
- How Do You Calculate Rental Income?
- What Is a Rental Analysis Calculator?
- Where Can You Find the Best Rental Calculator?
Are you thinking of investing in rental properties in 2023? Owning a rental property is one of the best ways to generate cash flow and build wealth over time. It’s also an excellent way to diversify your portfolio and provide yourself with a hedge against inflation. It is especially useful given the high rate of inflation in the world today.
The best way to ensure success as a rental property investor is to conduct an in-depth investment property analysis before making a purchase. It is the only way to guarantee a profitable investment.
In the past, investors needed to spend weeks, or even months, searching for rental data and performing key calculations with the help of traditional and Airbnb spreadsheets for analysis.
Fortunately, the advancement of real estate technology has made complex calculations much easier than ever before and has rendered spreadsheets practically obsolete. In this day and age, every investor should use a rental calculator to analyze investment properties.
Using a rental analysis calculator allows you to come up with accurate calculations of a subject property’s profitability based on actual real estate comps. It helps minimize human error (which is pretty high with manual inputs on spreadsheets) and makes projecting your return on investment (ROI) as realistic as can be.
Keep reading to learn what a rental calculator is and where to find the best one for 2023.
How Do You Calculate Rental Income?
One of the trickier things in investing in rental property is computing your return on investment or ROI. An ROI is simply how much profit you can make when you invest in a real estate property.
Your ROI will vary depending on your investment strategy and goals. Some investors prefer to buy a house and fix it to resell at a profit. It may take some time to get a return on your investment since you will still need to rehabilitate the property before you can get it listed. If you do things right with your fix-and-flip, the ROI is well worth the wait.
Other investors prefer to get quick cash by wholesaling or micro-flipping. They look for distressed properties for sale below fair value and turn them over to waiting buyers as quickly as possible without doing any repairs on the property. The profit is usually very minimal for such types of strategies, but investors do get their returns fast.
One of the more popular investment strategies among real estate investors is buying rental properties. Regardless of whether a property is rented out for longer periods or as a short term rental, it is a good strategy that generates a steady cash flow.
Computing Rental Property Income the Conventional Way
When it comes to rental properties, it is important that you, as an investor, know how to properly compute your rental income.
Rental income may consist of any or all of the following:
- Rent for the letting of your investment property
- All sorts of permits associated with the rental property
- Fixed and variable service charges
- Sinking funds or funds for unexpected expenses
- Reverse and deemed premiums
- Sums received furniture and furnishings use
- Property insurance
There are a couple of ways to compute your rental income:
Computing Rental Income on an All-Cash Transaction
If the property is bought in an all-cash transaction, simply divide your annual return by the total amount of the investment.
For instance, you found an income property for sale and bought it in cash at $100,000 with an additional $1,000 in closing costs and $9,000 for rehabilitation. It brings your total cash investment to $110,000. You then charge $1,000 in monthly rent for your property.
Based on the above numbers, you earned $12,000 for an entire year from a property whose fair market value was $100,000. During the same period, you spent around $200 per month (or $2,400 a year) on utilities, property taxes, and insurance. It makes your annual return $9,600 ($12,000 – $2,400).
To get your ROI, divide your annual return ($9,600) by the property’s fair value or purchase price plus other purchase costs ($110,000).
- ROI = $9,600 / $110,000
- ROI = 0.087 or 8.7%
Computing Rental Income on Transactions With Financing
While an all-cash transaction is ideal because you don’t need to deal with monthly mortgage payments (which ultimately impact your cash flow), it is inevitable in many cases. Most investors do not possess enough extra cash to purchase an income property to rent out as a long term or short term rental.
Most investors need to take out a loan to buy a property. If you’re one of those people, you will need to know how to compute your ROI and factor in your mortgage payments.
Let’s take, for example, a property with a fair market value of $100,000. Instead of paying cash, you take out a mortgage on a 20% down payment. In this case, the amount needed is $20,000. It is typical for mortgages to incur higher closing costs. So, for this example, we will go with $2,500. You spent the same amount ($9,000) to remodel the property.
The numbers above bring your total out-of-pocket expenses to $31,500 ($20,000 + $2,500 + $9,000).
Now, let’s assume you took out a 30-year fixed mortgage with 4% interest. The combined monthly principal payment and interest on the borrowed $80,000 is $381.93. We then add the same monthly expenses of $200 per month, bringing your monthly total to $581.93.
If you charge the same rental rate of $1,000 a month, your remaining monthly cash flow is $418.07.
It brings your annual return to $5,016.84 ($418.07 x 12 months). Your ROI is then the quotient of your annual return divided by your out-of-pocket expenses:
ROI = $5,016.84 / $31,500
ROI = 0.159 or 15.9%
What Is a Rental Analysis Calculator?
Computing your rental income manually is riskier because there is always that chance that you will put in incorrect data. It is why using a rental analysis calculator is the preferred choice among many seasoned investors.
Also called a rental property calculator or an investment property calculator, a rental analysis calculator is an online tool trusted by countless investors. They use it to compute key real estate metrics after inputting some basic data about an investment property that they plan to rent out.
With the provided numbers, investors can decide whether or not the property is a worthwhile investment. They can compare its performance with the performance of other income properties in other specific locations all over the country.
A rental calculator usually uses big data and AI technology to predict the future performance of traditional and Airbnb rental properties. It shows you how profitable a property is by giving you an idea of its cash flow against its fair market value or purchase price.
It is especially useful for investors who take out loans to buy properties at fair value. Unlike cap rate, which assumes that a property is bought in an all-cash transaction, cash on cash return takes into account financing methods in its computations.
The above are just a few of the advantages of using a rental income calculator over simply using spreadsheets.
However, with all the different rental calculators in the market, each with unique capabilities and functions, it can be confusing to choose which one to use. So, where do you find the best rental calculator for 2023?
Where Can You Find the Best Rental Calculator?
Finding the right tool is crucial to your investment success. As a real estate investor, you would want to work with only the best tool accessible to you. And while different real estate platforms offer their own version of a rental calculator, the reality is that not all calculators are made equal.
You need to find one that not only does the math for you but also helps you locate the right investment property that aligns with your vision, goals, and needs.
So where exactly can you find such a calculator?
The answer is Mashvisor! Mashvisor’s rental calculator is the ultimate tool for real estate investors and a must-have real estate software for beginners. But why should you use such a tool?
Mashvisor gathers property data from several reliable sources, such as the MLS, Redfin, Zillow, Airbnb, ListHub, and more.
Using our algorithms on the real estate data, the rental property calculator provides accurate analytics that helps investors make smarter investment decisions. You don’t need to spend weeks collecting rental data and estimating the key numbers. In just a matter of minutes, you can conduct a comprehensive investment property analysis.
With our real estate investment calculator, you reduce the chances of making wrong decisions due to bad calculations or losing lucrative investment opportunities due to slow analysis.
To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo.
What Data Does Mashvisor’s Rental Calculator Generate?
For each income property for sale on the platform or whose address you enter, Mashvisor’s real estate calculator will provide several estimates. The figures will help you determine how profitable the property is, considering its fair market value and other associated expenses.
1. Rental Property Expenses
When analyzing a potential property investment, one crucial thing you need to find is the cost estimates. It includes the costs you are expected to pay upon purchasing the property, as well as recurring monthly expenses. Mashvisor is not just a monthly expense calculator like most calculators in the market. It also estimates the one-time start-up costs for you.
On the Expenses section of the calculator, you will see the following expenses estimates and the totals for each category:
One-Time Startup Costs
Some of the typical expenses under this category are:
- Closing costs
- Furniture and appliances
- Home repair
- Home inspection
Monthly Rental Expenses
A few examples of monthly rental expenses include:
- Property maintenance
- Property tax
- HOA dues
- Property insurance
- Rental income tax
- Property management
- Marketing your rental property
Our investment property calculator is highly interactive and very intuitive. It allows you to customize and edit these expenses, such as rental income tax rate, as you see fit. It will help you get even more accurate and realistic calculations based on your specific situation as an investor.
2. Rental Income
Knowing how to calculate the monthly income generated by an investment property is crucial before making a purchase. The rental income data is needed to estimate the potential cash flow and return on investment.
With our monthly income calculator, you can access traditional and Airbnb data without researching similar properties in the area on your own.
3. Cash Flow
Cash flow is one of the most important metrics to consider when buying rental property. It refers to the difference between monthly rental income and monthly rental expenses.
Achieving a positive cash flow is the only way to make money with rental properties. Therefore, you should aim for positive cash flow when looking for an income property to purchase.
You will be able to save money for unexpected expenses and also invest in new properties. Of course, you will also need to consider its fair market value so that you don’t fall on the negative side.
You don’t need to do cash flow calculations on your own, as our rental income calculator is also a rental cash flow calculator.
4. Capitalization Rate
Your investment property analysis won’t be complete if you don’t calculate the return on investment. One of the most important return on investment metrics used to analyze potential real estate investments is the cap rate.
Cap rate compares the net operating income to the market value of an investment property. However, you don’t need a separate net income calculator as Mashvisor’s cap rate calculator calculates NOI and cap rate for you.
Whether or not you know how to calculate the cap rate using its formula, you should use our real estate calculator. It is faster and more accurate than manual calculations and helps you avoid bad decisions due to human errors.
You can access cap rate estimates for monthly rentals and vacation home rentals in the US housing market with the click of a button.
5. Cash on Cash Return
If you are considering using a loan to buy your investment property, cash on cash return (CoC) is the metric to focus on. It is because, unlike the cap rate, cash on cash return takes into account the financing costs. The CoC metric refers to the ratio of the annual pre-tax cash flow to the total capital investment.
Fortunately, you don’t need to memorize the cash on cash return formula, as you can get accurate estimates with our ROI calculator.
6. Occupancy Rate
A rental property’s occupancy rate is the percentage of time that it is occupied within a set period of time, usually a year. It is determined by several factors, such as location, the booking rate of comparable rentals nearby, amenities, rental rate, and many others.
The easiest way to estimate traditional and Airbnb occupancy rates is to use Mashvisor’s rental calculator.
What Makes Mashvisor’s Investment Property Calculator Unique?
A number of different online rental property calculators in the market can help you determine the profitability of a rental property by calculating key real estate metrics. But what makes Mashvisor’s investment property calculator the best one?
Here are five unique features that set apart Mashvisor’s rental calculator from the rest in the US housing market in 2023:
1. Mortgage Calculator
Your financing method will significantly impact your potential cash flow and return on investment. When you’re shopping around for an investment loan, you should keep in mind that rental property mortgage rates and terms differ from one lender to another.
That’s why Mashvisor’s rent calculator includes a built-in mortgage calculator that allows you to determine the optimal financing option suitable to your needs.
You just enter your mortgage details (down payment, loan amount, loan term, mortgage type, interest rate), and the system will crunch the numbers for you. You’ll instantly be able to see how your potential cash flow and cash on cash return is affected.
2. Neighborhood Analysis
When it comes to rental property investing, location is the most crucial factor to consider. You need to compare the average ROI on rental property for different neighborhoods in your city of choice to see which is the most profitable one.
Mashvisor’s real estate app allows real estate investors to quickly determine the neighborhood’s value based on neighborhood stats.
When you click on a neighborhood’s name, you will be taken to the Neighborhood Analytics Page. Here, you will find detailed information about that neighborhood. It includes:
- Median price
- Traditional cash on cash return and cap rate
- Airbnb cash on cash return and cap rate
- Traditional and Airbnb occupancy rate
- Optimal strategy (Airbnb vs traditional renting)
- Mashmeter score: A unique score calculated by our machine-learning algorithms to evaluate how good a neighborhood is for investing in long term and short term rental properties
- Historical rental income
- Neighborhood comps
- Optimal property type
- Optimal number of bedrooms
3. Optimal Rental Strategy
Another unique feature that differentiates Mashvisor’s rental calculator from other rental calculators is that it is perfect for analyzing both Airbnb rentals and traditional long-term rentals. Your rental strategy has an immense effect on the profitability of your investment property. Therefore, you need to choose it wisely.
For each of the key real estate metrics, Mashvisor’s calculator provides the property’s performance data as an Airbnb and traditional rental. The comparative data helps you to determine the optimal rental strategy easily.
If you’re looking to invest in short term rentals in the US housing market, Mashvisor is the best Airbnb estimator.
4. Real Estate Comps and Rental Comps
If you want to analyze an income property accurately, you need to look at how other similar properties in the area are performing. It is particularly useful when you want to answer the questions, “How much is the property worth?” and “How much can I rent my house for?”.
Real Estate Comps
An investment property’s fair value is not necessarily worth the listing price. You need to look at recent sales of similar properties (real estate comps) to determine the fair market value of the property you are analyzing.
It will help you avoid paying more than the property’s fair market value. Mashvisor functions as a “how much should I pay for a rental” property calculator that provides accurate real estate comps to help you determine the value of a property before buying.
Before you rent out your house, you need to determine how much to charge for rent. The best way to find a rent estimate that will maximize rental income and minimize vacancies is to look at what other rental properties in the area are currently charging for rent.
It is easier with Mashvisor’s rent calculator (rent estimator) as it provides both Airbnb and traditional rental comps for rental properties in the US housing market.
5. Investment Payback Balance
The investment payback balance is the amount of profit that your investment property is expected to generate (or lose) after a particular period. It helps that you know the projected performance of the income property and how long it will take to generate a certain amount of money.
Mashvisor’s rental calculator computes Airbnb and traditional investment payback balance monthly and yearly for up to 10 years. It takes into account the gross revenue, net rent, total expenses, start-up costs, Airbnb tax, and cash flow.
The platform also provides a graph version of the investment payback balance to give you a quick visual overview of the rental property’s future performance.
The Bottom Line
In real estate investing, knowing how to compute your rental income is one of the most important things you can do. It allows you to see whether an investment property is worth buying or not. Projecting a property’s potential ROI and cash flow will help you identify the more profitable real estate investments in a given location.
Using a rental property calculator when investing in rental properties can help you make smarter, data-driven decisions. However, not all rental calculators are made the same. Despite the unique features of other platforms’ rental analysis calculators, they come with certain limitations when computing ROI on rental properties.
If you’re looking for the best one in the market right now, look no further than Mashvisor’s real estate calculator. Our calculator is highly accurate and offers additional unique data and insights. It not only helps you crunch the numbers but also leads you to the right properties that align with your investment needs.
Additionally, Mashvisor’s rental calculator uses rental comps from its regularly updated database. It makes computing more realistic, which helps you manage your expectations. Mashvisor’s calculator also shows you which rental strategy is more effective for a particular real estate property.