The rental property calculator has been “the real estate investing tool” ever since it was invented. The question is: How do you use it to buy the best real estate investment properties?
As you probably already know, the rental property calculator is the same as the investment property calculator. It is an online tool that helps you conduct all the important calculations in real estate investing. In other words, it is used for analyzing rental properties as it helps real estate investors estimate the return on their investments using different property evaluation methods. However, there is more to it than just numbers, which makes it a must-have tool for the best real estate investments. So, how do you go about buying a rental property that is profitable using this simple real estate investing tool?
Related: Why You Should Consult a Rental Property Calculator First
The rental property calculator: You calculate the cash flow
Cash flow is a very important figure in real estate investing. It is the metric that determines whether you are making money or not. The cash flow formula is very basic. You take your monthly rental income and subtract the monthly property expenses out of that. The value you are left with is the profit, essentially.
Real estate investors use the rental property calculator to calculate the gains or losses of their properties. This is because the number one priority for investors is having cash flow as positive as possible. The best and the most accurate way to determine that is using the rental property calculator.
The rental property calculator: You calculate the capitalization rate of an investment property
The capitalization rate (the cap rate) is a form of investment property analysis. It is one of the most important property evaluation methods. Real estate investors usually use it to get a general idea of the return on investment for a certain rental property. It calculates the return on investment based on the net operating income as well as the overall property price. The cap rate formula looks like this:
Cap rate = Net operating income/Market value of the property
The net operating income is basically the annual cash flow that the property generates. Calculating the NOI is simple. All you have to do is take your monthly rental income, subtract the monthly property expenses, and then multiply that by 12. That is, of course, if you get the same amount of money every month. However, if you have different cash flow value each month, you should add them up instead of multiplying by 12. Remember, the net operating income is a pre-taxed value, so make sure to take that into consideration for accurate calculations.
As for the overall property price, it is simply the market value of your property. If your property’s market value is a million dollars, then you use that value regardless of what investment property financing method you have used.
The rental property calculator: You calculate the cash on cash return
The cash on cash return (CoC return) is another form of property evaluation methods. Just as the cap rate, real estate investors use it to forecast the return on an investment property. The only difference is that you divide the net operating income by the amount of cash you have invested. This means that if you have gotten a loan to finance the rental property, then you only count the down payment along with other expenses that you paid for in cash. These expenses include the closing fees and any other cash you have paid for this investment.
However, the thing with the cash on cash return is that the less you pay in cash, the higher rate of return you get. That is why most real estate investors choose to get a loan even though they might have the money for buying a rental property in cash. What they do, instead, is that they buy multiple rental properties with that money all financed with a mortgage. In that way, they can mitigate the risks of investing all of their cash. Even better, they can grow their real estate investment portfolio faster at the same time.
Related: Cap Rate or Cash on Cash Return: Which Metric to Use When?
The rental property calculator: You perform real estate market analysis
Real estate market analysis is directly associated with the location of the property. That is why we say that the rental property calculator deals with far beyond numbers. It also deals with real estate market facts that are essential for your investment. Basically, real estate market analysis helps investors pick the right location through comparison. Performing this analysis will help you determine whether buying a rental property in a certain area is worthwhile. Also, you can determine whether the rental property is worth its price at all.
Not only that, but also it helps you compare different rental properties within the same neighborhood. It is a great way to actually make the right investment choice when it comes to buying a rental property.
The rental property calculator: You choose the right rental strategy
As the rental property calculator is important to perform real estate market analysis, it contributes to your choice of a rental strategy. Knowing the housing market in a certain location is essential to pick the right rental strategy. Looking at past market trends as well as historical facts regarding the real estate market is the main determinant of your rental strategy. Therefore, the rental property calculator is the tool that every real estate investor should use for a successful real estate investing business.
Related: Airbnb vs. Traditional Renting: Which Rental Strategy Yields Higher Rental Income?
The rental property calculator: You choose the right type of rental property
We told you that the rental property calculator is not just about numbers. It is also about the type of rental properties you choose to invest in. Looking at the historical market data at a certain location, the rental property calculator can tell you exactly what type of rental properties is the best for this particular location.
The rental property calculator: Mashvisor
Finally, we are here to tell you that we have got your back for this one. Mashvisor is not all about real estate education, but also about the best real estate investing tools. Mashvisor’s rental property calculator is the best when it comes to buying a rental property. The accuracy and efficiency of its calculations take real estate investing to a whole different level. Sign up for Mashvisor and check out our blog section to learn more about our outstanding tool. Then, feel free to check out our rental property calculator to help you always buy the best investment properties.
