One of the must-have real estate investment tools out there is the investment property calculator. Buying an investment property is made easy- or at least easier- when you use this amazing tool. Forget the spreadsheets, forget the manual calculations, and forget wasting your time. By the end of this blog, you’re going to be wondering how you ever made any real estate investments without this tool by your side.
Making the Best Real Estate Investments: Rental Property Calculator
A rental property calculator basically analyzes the success/performance of a particular investment property. The best thing about it is that it does all the work for you. Whether you’re screening a potential rental property, or just interested in measuring your current unit’s performance, a rental property calculator is the way to do it. It’ll give you the answers you need in an investment property analysis. And it’s definitely the way to making the best real estate investments during your real estate search.
This is a digital tool, so you can easily find many versions of an investment property calculator throughout the web. However, if you’re looking at making the best real estate investments, you’re going to have to use the best calculator. That’s where we step in. With Mashvisor, you won’t just get a couple of numbers on a screen. Our investment property calculator provides valuable insight and explanation. It doesn’t just analyze your real estate property; it also analyzes the real estate market. With the use of historical data, predictive analytics, and real estate comps, it can quickly and easily conduct a comparative market analysis (sometimes referred to as a real estate market analysis).
Before we get into the actual calculations and functions of a rental property calculator, let us provide you with a better picture. Check out the following blogs:
- Buying Rental Property Calculator: The First Thing to Do in Real Estate Investing
- Mashvisor: The Best Rental Property Calculator You Could Ask For
The Importance of a Rental Property Calculator: What It Finds
Making money in real estate is all about making the right decisions. Every real estate investor needs some sort of data source. Something that saves time, produces results and is reliable. A rental property calculator can give you an assessment of a rental property’s performance and profitability, so you know what kind of return on investment to expect. By analyzing a property’s performance, you can be sure you’re making the best real estate investments. How does it do that though? By finding the following metrics and measures:
Often known as ‘cap rate‘, this is one of the most widely heard of metrics in real estate investing. The cap rate measures the expected return on an investment, without factoring in the financing. It is a ratio of the property’s net operating income (NOI) over its cost or market value. The net operating income includes expenses such as property taxes, insurance, repairs and maintenance, property management costs, and vacancy rate. Notice how mortgage interest isn’t mentioned in the list of expenses for the cap rate calculation. That’s because the method of financing isn’t included here.
Mashvisor’s investment property calculator finds the cap rate for your particular investment property, as well as the cap rate for the area it’s located in. Typically, real estate investors look for a cap rate of 6-8%. Usually, the higher, the better when it comes to cap rate. A higher cap rate indicates more income for less cost when comparing real estate comps. However, it’s important to mention that each real estate investment is subject to its own specific conditions. So some investments could require a higher cap rate to be deemed acceptable, while others are acceptable at a rate lower than 6% due to market trends and conditions.
Cash on Cash Return
This is where the financing method comes into play. Cash on cash return is a property’s annual profits divided by your up-front cash investment. This metric measures how much of a return you can expect on the actual cash you invested. So for example, if you invested $15,000 out of pocket, what is the return you’d receive as a profit on those $15,000 invested? If you had $1,500 in annual profits from your initial $15,000 cash investment, that’s a 10% return on investment. As you can see, the amount of cash you actually invested in a rental property is a key factor here.
Cash on cash return is also referred to as the ‘annual rental yield‘ in real estate investing. It answers the question: How much return does this real estate investment yield every year? Cash on cash return is a key metric in finding and making the best real estate investments. It is also useful in comparing your returns on a rental property to the returns of any other investment.
How to make money in real estate? How to make the best real estate investments? I think you know where this is going- cash flow. Cash flow is king when it comes to investing in rental properties. Cash flow is so important because it’s the basis for most of the other real estate investing metrics. All the best real estate investments have positive cash flow. Otherwise, they wouldn’t be considered profitable.
Cash flow is a rental property’s rental expenses subtracted from its rental income. The final number would ideally be positive and above 0. This means that this investment property it generating enough income to maintain itself and cover the expenses as well as make a profit for the owner. You would look for an investment property with a stable positive cash flow because this indicates profitability.
A rental property calculator can find many other metrics and measures like rental income, occupancy rate, internal rate of return (IRR), and more. Don’t forget to take advantage of Mashvisor’s investment property calculator to make sure you’re truly making the best real estate investments. To learn more about how we will help you make faster and smarter real estate investment decisions, click here.