We are 100% sure that you have already heard about the return on investment calculator.
However, the questions that most beginner real estate investors ask are: “What is it?” and “Why do they need it?”. Here is how a return on investment calculator works for investment properties.
Related: The Beginner’s Guide to Rental Property Analysis
What is return on investment?
Before we get to the return on investment calculator, what is return on investment (ROI) in the first place?
In general, return on investment is the annual return an investor expects from his/her investments. In case of real estate investing, it is the return expected on an investment property. The formula for calculating the return on investment for a certain investment property is the following:
ROI = (Annual rental income – Property expenses)/Value of the property
Return on investment in action:
You buy a rental property that is worth $100,000. The monthly rental income that your property produces is $1,500. You spend around $500 on rental expenses. Now, you need to multiply the previous sums by 12 to figure out the annual income as well as the annual expenses. You will get $18,000 for the annual rental income, and $6,000 for the annual rental expenses. The rest is easy, just apply it to the formula as follows:
ROI = ($18,000 – $6,000)/$100,000 = 12%
At this point, you are wondering whether 12% is a good return on investment for a property. The answer is yes. Typically, if you get an ROI of 8% and more, it is considered a good one.
What is a return on investment calculator?
As for the return on investment calculator, it is the tool a real estate investor uses to calculate the ROI. This simple real estate analytics tool will help you analyze an investment property. Therefore, you will be able to determine whether a rental property is worth investing in or not. So, basically, you need a return on investment calculator to calculate the basic real estate metrics. These metrics are your indicators of a profitable investment property.
How does a return on investment calculator work for investment properties?
Every real estate investor needs a return on investment calculator. The different functions of this tool make it the best when it comes to 1) calculating your annual profits or losses and 2) performing an accurate comparison between multiple properties when buying an investment property. Essentially, this tool helps a real estate investor perform accurate real estate market analysis as well as investment property analysis. It does so by applying real estate comps as well as historic real estate data that help predict the future market trends for a certain area. But how do you determine whether a certain investment property is profitable or not? Here are the most important figures and functions of a return on investment calculator:
Cap rate: This real estate metric is essential to calculate the estimated annual return on an investment property. It simply takes into consideration all the money involved in your investment. A simple way to calculate the cap rate is dividing the net operating income (NOI) by the optimal value of the property. NOI includes property expenses as well as the rental income before tax.
Cash on cash return: The CoC is another basic real estate metric the return on investment calculator calculates. Just as the cap rate, the CoC calculates the estimated annual return on investment. However, it only calculates the return on the actual cash invested. In other words, it only takes into consideration the down payment as well as other cash expenses such as the closing fees.
Related: Cash on Cash Return: Real Estate Investing
Rental income: The return on investment calculator is also efficient in calculating the estimated rental income of a rental property.
Of course, these are not the only calculations that a return on investment calculator performs. However, these are the most important ones that every real estate investor must know about.
Mashvisor’s investment property calculator
The fact that you are reading this blog right now means that you are in the right place. With Mashvisor, you will not only get real estate education through blogs, but you will also find all the best real estate analytics tools you need for your real estate investments. Mashvisor, moreover, is the ultimate source for an efficient investment property calculator, or return on investment calculator. In addition to calculating the metrics we mentioned before, it will also help you analyze locations in order to find the best locations for your investment properties. This feature uses the latest real estate data to perform real estate analysis for a certain real estate market.
Another feature of Mashvisor’s investment property calculator is that it helps you pick the right rental strategy in a certain location. Some locations are best for short-term rentals (Airbnb rentals), while other locations are best for investing in long-term rentals (traditional rentals).
Also, our tool will help you pick the right type of investment property. For instance, if you are looking for an investment property that is close to a university, apartment rentals might be the best type of property to invest in.
Related: What’s the Best Property Type for Short-Term Rentals
Impressive, right? We got more for you. Mashvisor’s investment property calculator takes into consideration even more details. It will help you decide how many bedrooms are most profitable in the real estate market of a certain area. All these features make the return on investment calculator the best investment in itself!
Finally
Making money in real estate is no joke. A real estate investor must be careful every step of the way. The right calculations and tools will get you to the right place. You must always keep track of all the ins and outs of your business. Therefore, before you get to the tools you need, you must obtain the right education in the real estate investing business. What would be a better source than Mashvisor to have everything you need in just one place?! Do not hesitate to sign up and explore all the different recipes for success that we have for you!