What is a rental property calculator, and what are the main components of it?
A rental property calculator is a tool that real estate investors use to calculate the rate of return on investment for owning and running a rental property.
A real estate investor who wants to purchase an investment property and turn it into a traditional or an Airbnb rental will typically use the rental property calculator in order to project the returns of the rental property based on a number of factors.
In order to achieve the most accurate and relevant results, a rental property calculator should include the method of financing in its calculations.
A real estate investor will set the calculator to either cash or mortgage depending on the method of financing that he/she is using. Most rental property calculators will include functions that allow them to calculate the interest rate of a mortgage based on its type and duration and will include the mortgage payments and the interest rate as expenses.
Any rental property calculator will also include all the different expenses that will apply to the investment in order to calculate the return on investment.
The two main types of expenses that should be included are:
First-Time Startup Costs
- Inspection costs
- Closing costs
- Furniture and Appliances
- Repairs and Renovations
- Property Maintenance
- Professional Property Management
- Property Tax
- HOA fees
- Rental Income Tax
However, a good rental property calculator will also include “other” sections that allow the real estate investor to include any additional or unique expenses, as well as modify and customize the ones that are available in order to get the most accurate results.
The Return on Investment
The main purpose of any rental property calculator is to calculate the return on investment. In order to do so, a rental property calculator will take all the different expenses and subtract them from the profits that the rental property generates.
While the main profits of any rental property are generated through its rental income, some rental properties will have other additions and amenities that can generate an extra amount of cash, such as washing machines or paid parking lots.
The rental property calculator should allow the real estate investor to include any sources of income that the rental property has in order to calculate the accurate return on investment.
Additionally, there are different types of rental property calculators that utilize different metrics for calculating the return on investment. Mashvisor’s rental property calculator, for example, utilizes the metrics of cap rate and cash on cash return, as well as the comparable rental income, which takes into account the rental property’s occupancy rate in order to give you the most accurate and realistic results.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
A rental property calculator is a tool that every real estate investor should use if they want to make the wisest investment decisions and reduce the amount of risk associated with investing in a property.
If you’re looking for one of the most unique and useful rental property calculators, head over to Mashvisor and start using the tools that are available in order to find the most profitable investment properties anywhere in the U.S.