What’s the most exciting new thing about real estate investing? Technology! Right? If you think about it, investing in real estate has not changed much – if at all – over the last few decades.
The basics are the same – you search through available real estate properties, buy the most appropriate one for you, fix it up, and rent it out. In a few years, you might sell your rental property if you expect a good profit.
Related: Should I Sell or Rent Out My House?
However, we now have something that our parents and grandparents and great-grandparents could not even dream about. Technology. Whether we talk about real estate investing websites, platforms, mobile apps, it’s all very new and it has transformed the world of real estate investing. And one of these new technologies that you as a real estate investor should definitely go for is an INVESTMENT PROPERTY CALCULATOR. Spreadsheets revolutionized real estate investing when computers became accessible to investors, but that was a couple of decades ago. Spreadsheets are becoming more and more obsolete now. The new best thing is the investment property calculator, which gives you so many more options and flexibility than the standard spreadsheets. But let’s look in details why you should forget about spreadsheets and move onto an investment property calculator.
To begin with:
What Is an Investment Property Calculator?
In simple word, an investment property calculator is a tool in which real estate investors enter the assumed costs associated with any particular income property and which in turn generates automatic calculations about the expected returns and profit for this property.
What Does an Investment Property Calculator Calculate?
There are many, many things which an investment property calculator can calculate for you, but here are a few of the most important ones:
- Cash flow: The cash flow is the net cash and cash equivalents which move in and out of an investment property every month, or the difference between monthly income and monthly expenses. It has to be positive because otherwise it means that you are losing – rather than making – money from your income property.
- Cap rate: The cap rate is the net operating income (NOI) over the property price, which means that it ignores the way in which a property is paid for. It should be around 10% or more for you to consider investing in a particular real estate property.
- Cash on cash return: The cash on cash return equals the NOI over the total cash investment, which means that you can differentiate between whether you paid for your property all in cash or with a loan. Experts recommend going for investments with cash on cash return of at least 8% to assure good profitability.
- Return on investment (ROI): The ROI is simply the ratio of the annual rental income over the total cash investment.
- NOI: I mean, with an investment property calculator you can also calculate such basic things as the net operating income, which is the difference between all income that your property generates minus all necessary operating expenses.
Related: How to Value an Investment Property
You are probably sitting there and thinking, “So, what’s the big deal? We can calculate all these numbers and many more with spreadsheets. Why do we need to bother with an investment property calculator?!” True, at first glance, an investment property calculator will not produce anything significantly different from what spreadsheets can do, but what it gives you is efficiency and flexibility.
What Are the Disadvantages of Spreadsheets?
1. Spreadsheets are time-consuming.
I know some of the older real estate investors are shouting “WHAT?” as they read this statement because data collection and analysis used to take much more time before spreadsheets. But what we mean is that even with spreadsheets, data collecting and entering takes more time than the actual data analysis.
2. Spreadsheets don’t allow for change.
The real estate market is a very dynamic one, and it is of crucial importance to have the ability to see and respond to changes immediately. Well, spreadsheets will not allow you to do that. Once you’ve entered your numbers and figures, they are there until you change them.
3. Spreadsheets multiply errors.
We are humans and we make mistakes. Especially when it comes to entering large amounts of data onto a spreadsheet. And instead of being able to catch this error and correct it, spreadsheets multiply the effect of data errors because of transfers through formulas and copied cells.
4. Spreadsheets don’t allow for efficient cooperation and collaboration.
If you are working with partners or mentors or any other people who need to be able to access your data and analysis, it is hard to do this with spreadsheets. Spreadsheets do not allow access to everyone and proper documentation into a single, shared location.
5. Spreadsheets don’t allow for mobile access.
Every real estate investor knows that a desktop or a laptop is not enough to be successful in your business anymore. You need the mobility and freedom which mobile apps give. Spreadsheets don’t allow for this flexibility. Have you ever tried looking at a spreadsheet from your smart phone?!
What Are the Advantages of an Investment Property Calculator?
1. An investment property calculator saves time and energy.
Because you don’t have to enter the data manually, you will have much more time to focus on the data analysis and deciding which is the best investment property for you instead.
2. An investment property calculator is dynamic.
Once again, because you don’t have to enter all the data by hand, with an investment property calculator you can enjoy a much more dynamic experience which allows you to react fast to any important changes in the real estate market.
3. An investment property calculator is likely to produce more accurate estimates.
Because an investment property calculator like the one that Mashvisor offers uses comparative and historical data, the analysis which it performs is more likely to lead to accurate calculations than a real estate investor using spreadsheets.
4. An investment property calculator is not all about the numbers.
The way in which Mashvisor investment property calculator is programmed does not take into consideration only the numbers but attempts to measure how good each neighborhood and city is for real estate investing based on other, more subjective but also more human aspects. Thus, the Mashmeter gives an overall neighborhood score expressed as a percentage, which allows investors to compare it to other neighborhoods in the same city or across cities.
If you are reading our blog, it means that you are already into real estate investing or at least seriously considering making the first move. Then, don’t be archaic and rely on spreadsheets. Switch to an investment property calculator now. And make sure to try out Mashvisor for analytical and comparative statistics on thousands of real estate properties across the US.