Savvy real estate investors understand that doing a proper investment property analysis is key to finding great deals. Before you make an offer, you want to make sure that the property will be profitable. One of the key metrics that investors use for investment property analysis is rental property cash flow, which is the difference between monthly rental income and monthly rental expenses. For a long time, investors have been using a rental property cash flow spreadsheet for their analysis in order to locate positive cash flow properties. But is it still the tool you should use in this time and age? But before we get into that, let’s briefly discuss why cash flow analysis is important.
Why Is Rental Property Cash Flow Analysis Important?
If the rental income is more than the rental expenses, you have positive cash flow. This means that you’ll be able to pay your operating costs and mortgage payments and still pocket a profit. You also won’t have to spend money from your pocket to hold the income property. If you invest in a property with negative cash flow, it means you will be losing money each month.
To avoid losing money each month, make sure you only invest in positive cash flow properties. The best way to ensure that you own a cash flow investment property is to calculate make the necessary calculations before buying. Therefore, as a real estate investor, you should know how to calculate rental property cash flow.
While Excel spreadsheet has been the go-to tool for investors for decades, that’s no longer the case. Technology has essentially rendered it obsolete. A much better tool has taken over – the cash flow calculator. This calculator has transformed real estate investing as it gives you more flexibility and more options than a standard Excel spreadsheet.
Let’s now take a detailed look at why you should ditch the rental property cash flow spreadsheet and begin using Mashvisor’s cash flow calculator.
The Cash Flow Calculator
Mashvisor’s calculator is an online tool that uses bit data and predictive analysts to quickly and accurately compute potential cash flow and other numbers for rental properties for sale in the US housing market. For any investment property on the platform or off-market property whose address you enter, the calculator will provide you with readily available analysis. You simply adjust your financing information, and the calculator will handle the rest.
When it comes to rental property cash flow analysis, the calculator tool estimates rental income and rental property expenses (Airbnb and traditional) and automatically computes potential Airbnb cash flow and traditional cash flow. These estimates are based on rental comps in the area the property is located in.
In order to use a rental property cash flow spreadsheet, you will need to collect data on rental expenses and rental income and key them into the spreadsheet. However, collecting this rental data can be difficult and time-consuming as it entails conducting detailed rental market analysis. Since the calculator provides readily calculated estimates of rental property expenses and rental income, it will save you a lot of time and effort you would have used to look for these data.
Moreover, the cash flow calculator is an interactive tool and allows you to easily adjust or add rental expenses as you see fit and immediately recalculates the cash flow as well as the rest of the metrics for return on investment. Actual, it’s recommended to always some extra research to find expenses that may be specific to that property, so you can get more accurate results and make informed investing decisions.
Why Should You Use the Investment Property Calculator Instead of a Rental Property Cash Flow Spreadsheet?
While a rental property cash flow spreadsheet and the Mashvisor calculator have the same basic function, our tool has som important advantages. Here are the additional benefits that make the calculator the superior tool:
1. Quicker Analysis
Using a spreadsheet is time-consuming. You have to do the data collection yourself and manually enter in. On the other hand, the calculator provides readily calculated estimates for rental income and rental property expenses and computes the potential cash flow. If you are analyzing multiple investment properties for sale, the calculator will save you the time and effort that crunching the numbers yourself takes. In the meantime, you can focus on deciding which investment property is the best for you.
Spreadsheets are very susceptible to even trivial human errors when you are entering large amounts of data. These errors can be hard to detect and correct. Moreover, if you make an error while using a rental property cash flow spreadsheet and fail to spot it, the error will be multiplied due to transfers through Excel formulas and copied cells. To correct an error, you may need to go back and start all over again.
Unless you are very careful, using spreadsheets can result in bad investment decisions due to wrong calculations. The cash flow calculator eliminates this as it uses big data from dozens of reliable sources and AI-powered predictive analytics to ensure highly accurate results.
Another benefit of using the rental property calculator instead of a rental property cash flow spreadsheet is mobility. You can access it on a smartphone (or desktop) anywhere you are if you have access to Wi-Fi.
4. Being Dynamic
Since you don’t have to enter data manually, the cash flow calculator allows you to swiftly identify and respond to any important changes. With a spreadsheet, you have to continually update the data by hand.
5. A Lot More information
A rental property cash flow spreadsheet only calculates cash flow. However, savvy investors know that you need to analyze more than just that to identify the best investment property for you. With the investment property calculator, you can access a range of information (numbers and insights) that will help you make smarter investment decisions. They include:
Cash on Cash Return
Cash on cash return is a return on investment metric that only takes into account the actual amount of cash invested. It is the ratio of the annual pre-tax cash flow to the total cash investment.
Another ROI metric that the cash flow calculator provides is the capitalization rate (cap rate). It is the ratio of the net operating income (NOI) to the property price. It’s an important metric for quickly comparing multiple investment properties that are similar.
Real Estate Comps
Real estate investors need to analyze recently sold properties that are similar to and located in the same area as the one they intend to purchase to determine if it’s worth the price. Rental comps are also useful in determining the right rent price to ask for. Unlike a rental property cash flow spreadsheet, the calculator automatically generates Airbnb and traditional comps for any investment property on the platform. You don’t have to spend a lot of time finding comps on your own or hire a real estate agent to do it for you.
Another thing that makes the cash flow calculator superior to a spreadsheet is its ability to conduct a neighborhood analysis. This helps you determine whether it’s a good area to invest in. It essentially provides comprehensive neighborhood-level data and analytics for your area of choice.
When you click on the neighborhood’s name, you’ll be directed to the Neighborhood Analytics Page. Here, you’ll access a range of neighborhood-level statistics and averages including:
- Median price
- Square foot price
- Number of properties
- Traditional and Airbnb rental income
- Airbnb occupancy rate
- Traditional and Airbnb cap rate
- Traditional and Airbnb cash on cash return
- Optimal strategy
- Mashmeter score
Using this data, you can gauge the performance of a particular area and compare with the performance of other markets.
The Bottom Line
One of the most important metrics that savvy investors use for investment property analysis is cash flow. If you are looking to make money in real estate, you should focus on investing in cash flow real estate. However, times have changed, and a rental property cash flow spreadsheet is no longer the best tool for this analysis. One of the most exciting things about investing in real estate now is technology. If you want fast and accurate rental property cash flow analysis, you should definitely take advantage of technology and use Mashvisor’s cash flow calculator.
To get access to our real estate investment tools, click here to sign up for Mashvisor today and enjoy 15% off.