Rental estimate tools make us better investors. Learn how you can be a better investor with this estimate tool and how to get the best out of it.
Table of Contents
- What Is Mashvisor?
- How Mashvisor’s Rental Estimate Tool Works
- How to Estimate Your Rental Income Using Mashvisor
- When to Raise or Lower Your Rental Price
- Rental Estimate Tools Make Investing Easy
Creating an accurate rental estimate is a difficult task. A genuinely accurate one would require using an AI that computes millions of data points across decades.
However, most small and medium investors don’t have the budget or the need for that. What they need is a tool that can estimate the most important metrics with a few percentage deviations. More importantly, a tool that can quickly compare multiple properties to see which one is best.
Mashvisor’s rental estimate tool does exactly that. In addition, the platform provides plenty of data to accompany the rental calculator. You’ll learn more about Mashvisor and the following things in this article:
- What data do you need to get a correct estimate
- How to make your estimates more accurate
- The basics of using Mashvisor
- What rental metrics you’re looking for
- How to price your rental
Ready to learn more? Let’s begin with a basic outline of what Mashvisor is.
What Is Mashvisor?
Mashvisor is a tool that is useful for both real estate investors and real estate agents. The tool’s main features tool include the ability to search for properties in an interactive and intuitive way and receive accurate real estate comps on the properties.
Such features are pretty standard for a real estate tool. What matters with Mashvisor is the quality of its tools.
The search tool allows real estate investors to find properties in up to five cities while applying multiple filters to find the right property. You can also see real estate comps from the search bar — Mashvisor shows stats like average Airbnb return in the neighborhood for each property.
Another useful search feature is the heatmap. When turned on, it highlights the areas on the map according to one of six criteria. You can choose to filter the map by cash on cash return or estimated rental income in both traditional rental and Airbnb, Airbnb vacancy rate, or price of the listing.
When you find a couple of listings that catch your attention, you can look up all types of real estate statistics on them and the neighborhood. While it is important to know a lot of information about the house you’re purchasing, knowing the neighborhood well is even more crucial.
Mashvisor provides data on cash on cash return, cap rate, estimated rental income, and much more.
If you want to get really analytical about your investment, Mashvisor offers a rental estimate calculator.
How Mashvisor’s Rental Estimate Tool Works
The rental estimate tool created by Mashvisor comes with several functions. Apart from being able to estimate rental income, it can calculate a lot of other important metrics.
You can run a quick calculation of your one-time startup costs and monthly expenses. You can also estimate mortgage payments in the calculator. With the estimated rental income gathered from thousands of listings, it’s possible to see an estimate of your gross profit from the property.
Afterward, estimating the cap rate and cash on cash return is possible based on the numbers you obtained.
The formulas are pretty simple. One-time costs like repairs are added to the price of the property or cash investment. Rental expenses and mortgage payments are subtracted from estimated rent to create a gross income estimate.
How to Estimate Your Rental Income Using Mashvisor
With Mashvisor’s rental estimate tool, you don’t need to run calculations manually or in Excel. Just put the numbers in the form, and the tool will do all the calculations.
Some numbers are provided by Mashvisor and are based on market research. For instance, the platform provides an estimated Airbnb vacancy rate and rental income based on an analysis of thousands of rental listings.
Other data you’ll need to input on your own. Renovation costs, maintenance, and other expenses are included in the list. Here’s what data you need to fetch and how to do it.
Estimate the startup costs
One of the most important types of expenses that differ from home to home is the startup cost. The obvious startup cost is the cash deposit on the mortgage. But it’s not the only payment you’re going to make when purchasing an investment property.
While the real estate agency fee is typically covered by the seller, you’re still going to pay mortgage closing fees. They include the HOA fee, the credit report fee, escrow fees, and multiple others.
Then, there’s the initial maintenance fee. If you’re purchasing a fixer upper or if you feel that the furniture needs changing before you put it on the market, you’re incurring another cost.
While a mortgage closing fee or additional taxes may fluctuate depending on the state, it’s easy to get a precise estimate. With maintenance, it’s a bit more complex.
Asking for a quote from contractors for every property you consider buying is too much work. You’ll probably be going to go off your intuition if you’ve previously done some renovation. Alternatively, you can hire a pro to give you a rough estimate. Don’t forget that the prices often depend on the area.
Include the abovementioned costs and other expenses in the rental estimate tool and go to the next step.
Estimate mortgage payments
The next large expense you’re going to incur is mortgage payments. You calculate what a payment would be in the rental estimate tool by providing these criteria:
- Property price
- Interest rate
- Time of payment
- Down payment amount
If you can’t get a quote from your loan provider or want to get a rough estimate, the calculator will produce a number that’s close enough to the one you’re going to end up paying.
Estimate rental expenses
Another area of costs you’ll need to figure out yourself is rental expenses. They include property tax, utilities, insurance payments, property management, etc.
It’s impossible to know exactly how much you’re going to end up paying for property management and other expenses, so a rough estimate is enough. Looking around the area for pricing and pulling up the local tax code can lead you in the right direction on rough figures on these.
When you do get your estimates, make sure you increase them by at least 15%. It’s always a good idea to calculate profits and losses for the worst-case scenario.
Estimate rental income with Mashvisor
The last piece of the puzzle, the estimated rental income, is given to you by Mashvisor. The estimated rental income is a figure based on market analysis. Mashvisor analyzes hundreds of local rental listings for similar homes and derives an aggregate number.
For Airbnb listings, it creates an estimate based on the average nightly stay price and the average vacancy rate.
With all of the expenses estimated and rental income provided by Mashvisor, we can start calculating rental income and other metrics with Mashvisor’s rental estimate tool.
Estimate cash flow
The first and one of the most important metrics for an average investor is cash flow. It is net rental income, the sum of money that remains when you deduct mortgage payments and rental expenses from the gross income.
Mashvisor’s rental calculator does exactly that for you. Let’s say the purchase price of your house is $300,000 and the loan is at 4%, leaving you paying around $1,400 monthly. The rental expenses add up to $400 per month, and rent in the area is about $2,500.
It leaves us with both mortgage and rental expenses covered and $700 in cash flow each month.
The cash flow is a crucial metric in deciding whether to buy the rental unit or not. You don’t want a negative cash flow — you’d need to pay out of pocket every week just to cover the mortgage.
If the rent does appear to cover the expenses, try playing around with numbers. Reduce the occupancy rate or increase the maintenance fees to see if it’s still making a profit.
Estimate cap rate
The next big thing you want to calculate is the cap rate. The standard cap rate formula is gross annual rental income divided by the price of the property. In our case, it would be (2,500*12)/300000, amounting to 10%.
The formula Mashvisor uses is a bit more sophisticated than the above and includes other factors like operating expenses and vacancy rate. So, with 16% rental expenses and a 5% expected vacancy rate, the real cap rate would be close to 8%.
It’s still pretty good as far as averages go. Depending on the type of investor you are, anywhere between 4% and 10% is a good cap rate number. If it’s lower, you should consider another investment home or switch to Airbnb if it’s hot in your area.
Estimate cash on cash return
Cash on cash (CoC) return is another important metric that Mashvisor can help you with. The CoC metric shows what return you are getting on the cash invested, not just the price of the house.
Mashvisor takes into account all the startup costs like repairs and closing fees and compares them to the net annual income. Let’s say that your $300,000 property was purchased with a cash investment of 13%, which is the average down payment in 2022.
It amounts to $39,000 in down payment. The renovation took another $50,000 of cash investments, and closing costs totaled $5,000. They make the total cash investment in the property at $94,000. The net income is $8,400 after all the expenses, which makes CoC return around 9%, depending on other factors you can include in Mashvisor estimates.
Related: What Is a Good Cash on Cash Return?
Decide on your investment
The benefit of using Mashvisor’s rental estimate calculator is that you run calculations on dozens of properties simultaneously. You can play around with numbers to see what investment is too much for your liking. For instance, a property that seems a bargain may not be profitable if you invest more than $30,000 in renovating it.
Explore different scenarios using the rental expenses calculator, and decide what rental property is best for you.
When to Raise or Lower Your Rental Price
Deciding what your rental fee is going to be is a tricky thing. No two homes are the same, even if you know the average prices in the neighborhood. You must still figure out whether you go above or beyond the average market price.
Changing the price once you’ve set them up is even more challenging. Here are a few things you want to consider when making that decision.
Consider the local market
Even if the economy is bad, or you just went through a bad year and want to recover the losses, you can’t price the rent significantly above the market. Nobody would live in a $5,000 house when you could rent a similar one for $1,200 down the street.
So, the first thing you look at is the market prices. If they’re slowly rising, it’s a good idea to increase when the lease is up.
Now, it could be argued that you can be the first landlord to raise the price in the neighborhood. A good reason will be if there’s more demand. If a new highway to downtown is built or a park opens within walking distance, it’s going to attract more tenants and prices will rise eventually.
Consider the economic situation
The other thing to take into account is economics. If interest rates are rising and inflation is increasing, it’s only natural to increase rental fees.
Inflation in 2022 is now at 8.5%, and it’s already affecting average rental prices in the US. Investors need to keep a certain ROI for the property to remain profitable. With bills getting more expensive and rental payments costing less due to inflation, raising prices is the only way to keep afloat.
Consider the legislation
The only factor preventing you from increasing prices, even if the situation calls for it, is legislation. Some states or cities impose a limit on year-over-year rent increases.
If your state only allows increasing rent by 3% and inflation hits 8.5%, you end up losing money.
Rental Estimate Tools Make Investing Easy
Knowing how well your investment is working is great. What’s even greater is running estimates on all rental units you consider buying before making the final decision.
Mashvisor lets you do them with the rental estimate tool. The tool provides several key metrics like cash on cash return and cap rate alongside the cash flow estimate.
Some figures like repair costs you need to estimate yourself. Others, like estimated gross income, Mashvisor estimates for you based on market data analysis. Play around with the figures in the rental calculator, and you’ll know what conditions make a particular property profitable and what don’t.
Want to see how the calculator works? Sign up for a 7-day free trial of Mashvisor now, followed by 15% off for life.