What is an investment payback calculator and why do you need to use one when investing in real estate?
An investment payback calculator, or simply an investment calculator, is a tool that allows you to calculate the payback period of your investment to see when your investment is estimated to pay back the amount of money invested in it.
When investing in real estate, any wise real estate investor will want to know how much profit an investment will generate, and the time period that it will take an investment to generate enough money to cover its costs and start being profitable.
In this article, I will explain what the investment payback period is, how the investment payback calculator is used, and what the best online tool is that you can use to calculate it.
Investment Payback Period
The investment payback period is the period of time that it takes for an investment to generate enough money to cover its costs.
In other words, and in the context of real estate investing, it is the duration that it takes for the investment property to generate as much money as was put into it.
The costs, or the money that was put into the investment property, are any costs or expenses that incurred when purchasing the investment property (such as closing costs, renovation costs, and agent fees), as well as the expenses that incur during the holding period of the property (such as property management, amenities, and taxes).
These expenses are all taken into account when calculating the investment payback period, as will be explained in further detail below.
How Is the Investment Payback Period Calculated?
The investment payback period is calculated by simply dividing the total cost of owning and running an investment property by the amount of money that it generates each year.
By doing so, you will get the number of years that it takes for the property to generate enough money to pay back its costs and to start generating net profits.
For example, if you own an investment property that you paid a total of $500,000 for (including price, closing costs…etc.), and that property is generating $50,000 annual cash flow (after factoring out recurring and operational expenses), this property’s investment payback period would be calculated as follows:
Investment Payback Period = Total Cost / Annual Cash Flow
Investment Payback Period = $500,000 / $50,000
Investment Payback Period = 10
Related: What Are the Best Locations for Cash Flow Properties in the US Real Estate Market?
This means that the investment payback period for this property is 10 years. Meaning, after 10 years of operating the investment property, and if the cash flow is not affected positively or negatively during these years, the investment property will finally start to generate pure profits for you.
While this seems fairly simple to calculate, it must be noted that there are several factors and values that need to be considered when calculating it. The Cash Flow metric, for example, requires more information to be gathered about the property in order to be calculated.
Mainly, you will need to have an accurate estimate of the amount of money that the property will generate. In the case of rental properties, this will be the comparable rental income of the investment property (the property’s rental income after factoring for its occupancy rate).
Additionally, you will need to gather enough info to get an estimate of the recurring expenses that will incur. These will include:
- Amenities
- Property management
- Rental income tax
- Property tax
- HOA fees
- Maintenance costs
So, unless you find a source that provides you with all of these values or close estimates for them, the process of gathering this info and doing the calculations can be a lengthy and daunting process, and you cannot calculate the investment payback period without it.
Also Read: Where Can You Find a Rental Property Calculator?
This is why it’s very important to find the right online tool or investment payback calculator to use when investing in real estate.
Luckily, the tool that I’m about to show you has everything you need to make these calculations with ease and in a very short amount of time.
Mashvisor’s Investment Payback Calculator
Mashvisor is an online platform that was designed to help beginner as well as experienced real estate investors with all matters related to investing in real estate.
The platform includes a number of features and tools that cover all the basics of investing in real estate, allowing for a quick and seamless process of doing all the searching, analyzing, calculating, and comparing in order to make wise investment decisions.
One of the features that Mashvisor has is, as you might have guessed, an investment payback calculator.
While there are several investment calculators that exist online, none of them have the utility or convenience of this investment calculator. This is mainly because part of what Mashvisor does is that it gathers data and provides ready calculations for the cash flow, expenses, mortgage payments, and all the other elements that are needed to calculate the investment payback period.
This makes it much easier for Mashvisor to provide its user with a readily calculated investment payback period in an easy to understand format.
Additionally, this investment payback calculator is customizable in a unique way. Since it is directly linked and handles its calculations based on the data it gets from the mortgage, expenses, and rental strategy calculators, all you have to do to get the most accurate and relevant results is to modify the values in these calculators and the changes you make will be immediately reflected in the investment payback period section.
To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.
Finally, Mashvisor’s investment payback calculator comes with two formats that you can choose from:
Investment Payback Balance Table
So you can choose the format that suits you best, and all the info that you need will be at the tip of your fingers (whether you’re using a mouse or a tablet).
Want to have a chat with us to see a live demo of the platform? Click here to book a time for a call on our calendar!
Bottom Line
Whether you’re a beginner or an experienced real estate investor, you should definitely be aware of the importance of calculating the investment payback period when planning your investment and finances.
While it is definitely possible to do all the necessary data gathering and calculations manually and without the help of any online tools, the process can be very daunting and time-consuming. For this reason, it is highly recommended that you find an online tool that suits your needs and use it for your investment in order to compete with all the other investors out there.
Mashvisor is among the best options to choose from due to its versatility and the wide range of tools and features that it provides. Also, when these features are all linked together, all of your calculations and data become more accurate and more relevant for your individual needs and goals, making Mashvisor an all-purpose workbench for all of your real estate investment needs.