Real Estate AnalysisWhat Is the Importance of Rental Potential Calculator in Real Estate Investments? by Dinah Jaber February 18, 2018February 17, 2018 by Dinah Jaber February 18, 2018February 17, 2018Success in any domain, including real estate investment, starts with good and strategic planning. Therefore, before investing in or buying a rental property, it is of a great importance to estimate the profitability of your investments by using different tools, one of which is the rental potential calculator. Let us delve together into understanding the rental potential calculator and its importance in real estate investments.What Is a Rental Potential Calculator?Successful real estate investors take advantage of the available tools to estimate the potential profitability of real estate properties before buying them. A rental potential calculator, or an investment property calculator, is an advanced tool that can be used online in order to precisely estimate the potential return on investment or cash flow that a real estate investment may generate. A rental potential calculator is an easy way that replaces outdated investment property spreadsheets and save reale state investors’ time and efforts. But how does it work and what aspects of a potential income the rental property calculator checks?Related: How Can You Find a Rental Property Calculator for the Best Real Estate Investments? How Does a Rental Potential Calculator Work? A rental potential calculator evaluates the extent to which a certain investment property is lucrative or not by calculating the following:Calculating Cash on Cash ReturnCash on cash return (CoC return) is basically the output of dividing the investment property’s NOI (net operating income) by the amount of cash money you provided (not including the borrowed amount of money). For example, if a rental property’s value is $2,000,000 and you paid 25% of its cost in cash, which is $500,000, and its NOI is $20,000, then the cash on cash return is 4%.The equation goes like this: Cash on cash return = Net operating income/Cash invested x 100Real estate experts recommend going for investments with at least 8% cash on cash return to ensure profitability.Related: Real estate investing 101: How to calculate cash on cash returnCalculating Capitalization RateCapitalization of income, also known as cap rate method, is the ratio between the net operating income (NOI) of a rental property and its cost. To identify cap rate, we divide the NOI by the cost or the selling price. For example, if the NOI of a rental property is $400,000, and the cost is $4,000,000, the cap rate is 10%. This method is also used to predict the cost of a real estate property by using capitalization of income. To do so, simply transpose the equation and divide the NOI by the cap rate. For instance, if the NOI of a property is $300,000, and its cap rate is 9%, the estimated cost or the reselling price is almost $3,333,333. This method offers an estimation of return to the real estate investors in case they paid cash for the investment property.Calculating Cash FlowCash flow is simply the difference between the rental income and the expenses of a rental property. Having a negative cash flow means that the real estate investment is not a lucrative one because the expenses exceed the profits and vice versa. Therefore, it is important to figure out whether a potential investment property will generate positive cash flow or negative cash flow before actually investing or buying real estate properties.Related: Cash Flow Investment Property: The Key to a Successful Investment Why Is a Rental Potential Calculator Important?Whether you are a beginner or a seasoned real estate investor, a good amount of knowledge with regards to the rental potential calculator is crucial to figure out all calculations and metrics associated with investing in a potential property. A rental potential calculator will save your time and efforts in figuring out whether to invest or buy a certain investment property or not, simply because profitability is the ultimate goal of real estate investment. It will also give you an insight with regards to the way in which the profitability of a certain investment property is evaluated and what factors you need to take into consideration when looking for real estate investments.Mashvisor’s Rental Potential Calculator Mashvisor provides you with a search map to look for investment properties in any area you want to invest in the US housing market. There is also the feature of filtering different categories to facilitate the process of property searching. The available database allows you to compare different locations and different properties based on prices, cash on cash return for rental properties, Airbnb and traditional rental income, and Airbnb occupancy rate. Upon selecting a specific neighborhood or location to look for rental properties, Mashvisor’s rental property calculator will then provide you with average rental income, capitalization rate, cash on cash return, and average property price. The results are extremely important for real estate investors or potential investors to decide whether to buy and invest in a certain real estate property or not and to understand the measurements used to evaluate the profitability of investing in properties.Not only that, Mashvisor’s rental property calculator also gives you informed suggestion on what real estate rental strategy suits you as an investor and your investment best, taking into consideration the inputs, the location, and the type of rental property. With this advanced rental property calculator, you will get the chance to have access to various real estate market data analysis and neighborhood analysis to raise your chances of investing in successful rental properties in the best locations available. Make sure to check it and take advantage of the advanced tools to analyze rental properties.Bottom Line Using a rental potential calculator prior to investing in or buying a rental property is not optional for successful real estate investors. On the contrary, it is a necessary measurement and a tool to be used as it plays a crucial role in coming up with an informed decision regarding the best location to buy and invest in a property, the best type of rental property, and the most suitable real estate investment strategy to use in tandem with your budget, plans, and goals. It gives you the basics you need to confidently start investing in a certain property. Why would you spend time and efforts in analyzing metrics and features that evaluate the potential profitability of an investment while a rental potential calculator can do all that for you? Mashvisor’s rental property calculator is a tool that incorporates advanced features and has huge database that enables you to find the best place, type of rental property, and rental strategy to use, so do not waste more time and sign up for Mashvisor right now. Start Your Investment Property Search! START FREE TRIAL Start Your Investment Property Search! START FREE TRIAL 0FacebookTwitterGoogle +PinterestLinkedin Dinah JaberDinah is an experienced writer, translator, and interpreter. Although she likes writing about various aspects of real estate investing, Airbnb rentals are her favorite. Previous Post What Are the Best Ways for Real Estate Investors to Get Rich? Next Post Real Estate Investing 101: Top Real Estate Investment Strategies Related Posts How to Find Rental Comps for Traditional and Airbnb Investments in 2021 Real Estate Investing Terminology: Capitalization Rate Should You Be Buying Atlanta Investment Properties for Sale in 2018? 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