As a real estate investor, knowing how much your property will earn is essential. An excellent rental property income calculator will help.
Table of Contents
- How Much Income Should a Rental Property Generate?
- How Mashvisor’s Rental Property Income Calculator Can Help You
How do you expect to make any profit if you do not measure it? As a real estate investor, one thing you must avoid is failing to calculate the estimated income your rental property will generate. It also applies to the value of your home. A failure to measure leads to uneducated guesses, leading to losses and the value of your home going down.
You must also deal with the issue of taxes. If you fail to calculate the income of your rental property, you will be unable to pay your taxes, or if you do, you will either grossly overpay or painfully underpay. And when “Uncle Sam” comes for you, you will bear the repercussions. Every real estate investor’s toolbox needs Mashvisor’s rental property income calculator.
Therefore, when it comes to investing in real estate, ensure that you calculate the income of your rental property using the best rental income calculator in 2023. In this article, you will learn what a rental property income calculator is, how it works, why you need it, and what happens if you fail to use it.
How Much Income Should a Rental Property Generate?
The income a traditional rental property should generate largely depends on the type of rental property. For instance, the average rate of return for a commercial rental property in the US is 9.5%, and for residential rental property is 10.6%. That being said, regardless of the type of rental property, the average rate of return for any rental property in the United States is 8.6%.
Furthermore, there is no exact figure for how much income a traditional rental property should generate. One common practice is to use the 1% rule to figure out how much you should charge on your rental property as long as you do not make losses. Some investors are fine with an income of $100 monthly, while a few are satisfied with between $800 and $1,000 monthly.
There are several ways to calculate how much your rental property should bring in as income to avoid incurring losses on your property. Mashvisor’s rental property income calculator can help you find out how much you should charge on your rental property.
Average Income a Short-Term Rental Property Generates
Firstly, a short-term rental property is one with a lease of fewer than 12 months. It can be a single-family home, a condo, or a townhouse. The owner buys the property for the main purpose of renting it out and does not wish to live in it. They intend to put the property up as an Airbnb rental for renters to find.
The income a short-term rental property generates will be different from the income a long-term rental property generates. For instance, a short-term rental property can bring in an average of a few hundred dollars to a thousand monthly, while a long-term rental property can bring in from a thousand dollars or more monthly. The final amount depends on the location of both properties and several other factors.
Related: Traditional Rentals vs. Short-Term Rentals: Which One Is the Right Rental Strategy for You?
Factors to Consider Before Pricing Your Rental Property
You should never price your rental property without doing your due diligence. It means that several factors affect the pricing of a rental property. And if you ignore them, you will either end up pricing your property too high or too low. It will either drive your potential renters away or attract low-value renters. Either way, you lose.
Therefore, here are the factors you should take into account when deciding how much you should charge for your rental property:
1. Timing
The real estate market fluctuates, and you need to catch it at the right time. Rent prices also fluctuate during specific seasons. For instance, the rent for properties tends to go up during the late spring and early summer seasons, which are also when most people move.
2. Livability
If your rental property is a haven for rodents and insects, you will find it difficult to attract renters. Also, the property will not bring in the type of income that will make your pockets shake. Thus, do everything in your power to ensure that your rental property is in tip-top shape and ready to be inhabited by humans.
3. Personal Goals
Why did you decide to become a landlord? Think about it as you price your rental property. Is your main purpose to boost profits, or are you just in it for the regular cash flow?
If you want maximum profit, reduce expenses and place a high rent on your property. But if your goal is a constant positive cash flow every month, you can price your property modestly and still be happy.
4. Vacancy Rate
A vacant property is a profit-killer. Whether you like it or not, a time will come when there are no tenants occupying your property. Keep it in mind when placing rent on the property. Some investors can fund the property for months until they find a tenant. Some can’t.
If you want to wait for the right time and right tenant, be ready to lose some money initially, but you can increase the rent when you finally get a tenant. Figure out how much you are willing to lose during vacant periods and adjust the rent of the property accordingly.
5. Costs
As an investor, one thing you must keep in mind is the monthly cost of maintaining the rental property. How much are you paying for the mortgage and insurance on the property? How about other costs like maintenance and repairs?
Normally, you will make more money in income than you will spend on costs. But keep all relevant figures in mind because the ultimate aim is to generate a positive cash flow.
6. Amenities and Utilities
Some real estate investors are usually in charge of paying for the utilities of their property. It involves costs like light, water, and security. In such cases, you will need to charge the tenant more for the property.
7. Previous Prices of the Properties
If you buy a property you intend to rent out, find out how much the previous owner rented it out. It will give you a rough estimate of the amount you should charge.
You can find past rental rate information online, or you can ask the previous owner directly. Prices might have changed before you get a renter, but the amount will give you a starting point.
8. Prices of Similar Properties in the Area
Before you put a price on your rental property, you can check out Mashvisor’s Property Search tool and use its Rental Comps & Insights feature to find out how much homes in your neighborhood cost. Here, you will get a rough estimate of how much you should charge as rent.
Remember, the property you look at should be the same or similar to your property so that the estimate can be close enough.
These are just some of the factors you should consider before pricing your rental property. The task can be tedious for any individual. That is why it is also advisable to use a rental property income calculator to help reduce the load on your shoulders. The best you can find is Mashvisor’s calculator.
Related: Rental Comps: What Are They and Where Can I Find Them?
How Mashvisor’s Rental Property Income Calculator Can Help You
Mashvisor offers one of the best rental property income calculators for real estate investors. It provides the most precise income evaluation for an Airbnb or traditional rental property using the most up-to-date and comprehensive data analytics. It also performs neighborhood analysis to find out which neighborhood is best to invest in.
Once you enter all the vital information for the property, such as the one-time initial investment and other monthly expenses, Mashvisor’s calculator analyzes crucial metrics at the property level.
Using the rental property income calculator is important to any real estate investor. It allows you to spend less time calculating the rental income on your property. It gives you more time and resources to focus on other important aspects of your property, like renovations, maintenance, and finding the appropriate tenants.
Another important benefit is that it helps you avoid mistakes. If you decide to do the calculations manually, you are bound to make mistakes, and some of the mistakes might prove too costly. With the help of Mashvisor’s calculator, you can quickly estimate and find the best rental rates to charge your tenants.
Finally, the rental property income calculator can serve as a mentor. It lets you locate the optimal neighborhood to invest in based on your investment goals.
Rental Strategy Calculator
The rental strategy calculator is a way to figure out the method of financing you wish to use on your property. It includes factors like the mortgage type, how much you want to pay as a down payment, and also, the interest rate. Below are other factors you need to look at:
Comparable Rental Income (Traditional/Short-Term)
Comparable rental properties are properties on the market in your neighborhood that share similar features with your property. You can figure out the average rental price from the properties by selecting the ones that are geographically close to your home. Then, you can base your rent calculation on that number.
With the comparable rental income analysis, you don’t charge more than the market value for a property like yours. This is different for both the traditional and the short-term rental property.
Monthly Expenses
Monthly expenses are the costs of owning a rental property. These expenses are factored into the rent price of your property. Figure out how much you would pay every month on expenses and add it to the income calculator to provide you with the best rental estimate for your property.
Cash Flow
Cash flow in real estate simply means the flow of cash in and out of the property. As a real estate investor, you should aim to get as much positive cash flow as possible.
A positive cash flow is one whereby the property brings in more money than it takes out. On the other hand, a negative cash flow is one where the property takes out more money than it brings in.
A good positive cash flow will increase the value of your property, thereby increasing its income potential.
Cash on Cash Return
Cash on cash return in real estate simply means the return on investment (ROI) on a property. It provides you with an estimated projection of how much the income property will earn on the initial invested amount. It is also defined as the cash flow before tax divided by the cash invested. Below is the formula for cash on cash return:
Cash on Cash Return = Cash Flow Before Tax / Total Cash Invested
Cap Rate
The cap rate refers to the rate of return on an investment property based on the projected income of the property. A cap rate is considered good when it is between 5% and 10%. Below is the formula for cap rate:
Cap Rate = Net Operating Income (NOI) / Price of the Property
Cap rate and ROI are not the same. The cap rate tells you what the income of a property should be currently, while the ROI tells you what the income of the property can be in the future.
Occupancy Rate
Occupancy rate is defined as the percentage of rooms occupied in a property at any given time. It is one of the most important measures of success in real estate. You can calculate the occupancy rate by dividing the total number of rooms occupied by the total number of available rooms and multiplying it by 100.
Occupancy Rate = (Total Number of Rooms Occupied / Total Number of Rooms Available) x 100
For instance, if 46 units are occupied in a 50-unit apartment building, the occupancy rate would be:
(46/50) x 100 = 92
Therefore, the occupancy rate would be 92%.
Related: What Airbnb Occupancy Rate Can You Expect in the US Market [2022]?
Extended Listing Strategy Calculator (c/o Furnished Finder)
When a real estate agent lists a property, they usually sign an agreement to list it for a specific amount of time. Therefore, when you see a listing with the extended listing sign, the agent renewed the contract before it expired, and the property is still available.
An extended listing calculator helps determine how many active listings an agent will need to reach their income goals. Furnished Finder helps short-term traveling professionals find a good rental property that is already furnished.
Expenses Calculator
If your expenses are higher than your income, the value of your home reduces. Conversely, if your income is more than your monthly expenses, the value of your property will increase.
For the value of your home to increase, you must manage your monthly expenses. Mashvisor’s rental property income calculator can help you determine how much you spend on your home each month and how it stacks up against your income. The calculator can also help you to determine your one-time startup costs and monthly expenses.
One-Time Startup Costs
Mashvisor’s calculator can help you determine the one-time startup cost of investing in a rental property. Not all expenses are regarded as startup costs. Therefore, you must know which expenses are startup costs and which ones should be used as the basis for how much you charge as rent.
Examples of one-time startup costs include:
- Property inspection costs
- Ads for renters to find motivated sellers
- Legal and other professional fees
- Repairs
- Closing costs
Monthly Expenses
Monthly expenses are costs that come with owning a rental property. The costs range from routine maintenance to utilities and other amenities.
The value of your income property is also sometimes tied to the amount you pay as monthly expenses; however, you can add the monthly expenses to the rent of the property. Be careful, though. Ensure your monthly expenses do not surpass your income, or else the value of your home will reduce.
Mashvisor’s calculator can also help you figure out your monthly expenses in addition to your startup cost and come up with a rental estimate to ensure a positive income from your property.
Mortgage Calculator
Costs can sneak up on you when trying to buy a property. While there are mortgage calculators for home buyers, there are not many calculators for real estate investors. This is where Mashvisor’s mortgage calculator comes in.
Mashvisor’s mortgage calculator helps real estate investors determine the estimated mortgage they will pay on their properties. Depending on your preferred investment strategy and loan amount, the calculator will display your cap rate and cash on cash return in real time.
Remember that a mortgage calculator, like any other tool, depends on your input to help you make wise choices. Therefore, be sure to conduct adequate research and exercise due diligence. Include home ownership association (HOA) dues, insurance payments, and property taxes in the expenses section of the calculator.
Investment Payback Balance
Investment payback balance can be defined as the amount of money you gained or lost or up to the point of time that you’re looking at. For example, if the investment payback balance is -$7,000 after five months, it means that the property will cost you $7,000 within the first five months.
However, if the payback balance of the property is $30,000 after three years, it means that the property will have generated an income of $30,000 during the said period.
Below are the metrics used to calculate the investment payback balance on a property:
- Adjusted gross revenue
- Total expenses
- Net rent
- Property tax
- Cash flow
- Startup costs
Mashvisor’s Investment Payback Balance table shows the amount of money you gained (or lost) or up to the point of time that you’re looking at.
Conclusion
As a real estate investor in the US looking for the best properties to provide you with consistent income, Mashvisor’s rental property income calculator is your best bet.
Whether you are a beginner or an experienced investor, always remember that your rental property should provide income higher than the amount it costs to maintain the property. If the property expenses are greater than its income, you can see a significant decline in the value of your home.
Therefore, to guarantee that the income from your rental property is always in the green zone, you need a good rental property income calculator like Mashvisor’s. The calculator helps you make sure that you buy a profitable Airbnb property. Then, it helps you price the rent at a fair market value that maximizes profitability while reducing expenses.
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