Making money in real estate could be the easiest thing if done the right way. A huge part of that, in fact, is buying the right investment property. Luckily, there is one tool that can help you find the right property for your investment business: The rental property calculator.
As a matter of fact, a rental property calculator is a must when we are talking about investing in real estate as this tool could save you the pain of investing in the wrong property in the wrong location. So, let us start by defining a rental property calculator, and then take a look at its functions.
Related: Using an Investment Property Calculator: The Pros and Cons
What is a rental property calculator?
A rental property calculator is also called an investment property calculator. In short, it is an online real estate investing tool used to perform accurate real estate market analysis. Real estate investors usually depend on it to compare several investment properties within a certain location as it uses data not only on the investment property itself but also on other properties in the same location.
A rental property calculator is the tool you need to calculate an estimated return on investment before buying a rental property. In other words, you should use it to perform investment analysis. This will include inserting the rental income in addition to rental expenses in order to give you accurate real estate metrics. These metrics will help you determine whether the rental property is a good investment or not.
What do you, as an investor, learn from a rental property calculator?
First of all, a rental property calculator is important to figure out all the real estate metrics associated with a potential property. Otherwise, you are wasting your time looking in the wrong direction. Here are some important measures that this simple tool predicts:
Net operating income (NOI)
The NOI is a figure that represents the annual rental income a property produces. To calculate that, you will need to know how much a property produces in total and then subtract the property expenses. The figures you get are pre-tax figures that indicate the annual cash flow of your property. Now, in order to calculate the cash flow of your rental property, you need to divide the NOI by 12. The number you get is your monthly cash flow.
Cash on cash return (CoC)
This figure is important in order to estimate the return on the actual cash invested in a property. This metric, in particular, will help you estimate the annual return on your investment property accurately. However, it takes into account only the amount of actual cash. This includes the down payment, your agent’s fees, and the closing costs as well as any other expenses paid in cash. The CoC formula is the following:
Cash on cash return = Pre-tax cash flow/Actual cash invested in the property
Related: The Best Cash on Cash Return Places for Traditional Rentals Right Now
Cap rate
It is mostly used amongst commercial real estate investors to get a quick estimation of a certain property. What it does is to estimate the return on a certain investment property regardless of the financing strategy. That is actually the main difference between the cap rate and the CoC. In other words, whether you pay all in cash or take a loan, the cap rate calculates all the numbers involved, while the CoC only takes into account the number of dollars you have put into the property. Here is how you calculate cap rate:
Cap rate = Net operating income (NOI)/Market value of the investment property
Now that you have the formula, all you have to do is insert your numbers. Make sure to insert annual figures for each variable, and you are good to go.
Are there any disadvantages in a rental property calculator?
There are always advantages and disadvantages to everything. Therefore, to say that a rental property calculator is a perfect tool is a bit exaggerated. So, here are some of the cons of this tool:
It costs money: In order to get a good quality rental property calculator, you will have to put some cash. There are no free high-quality calculators out there. Though you can find free ones, you will have to settle for low quality calculations as well as little information. If you are willing to invest that money in a real estate tool, then you will have access to fully detailed analysis of your potential property. So, you are the one to decide whether you want it or not.
You get as much as you give: In other words, you will only get as much information as you put in. The more data you provide, the more accurate details you get. That is, in fact, a problem. The rental property calculator over-relies on the data you provide.
You still need a real estate agent: If you are new to real estate investing, a rental property calculator is not enough. You will still have to hire a real estate agent. Even though the calculator will give you accurate calculations, still an agent will give you the in-depth insights on a certain property. However, you will have to pay the agent’s fees and add that to the expenses.
Mashvisor’s rental property calculator
There is no better place to look for the best rental property calculator than Mashvisor. The good thing about Mashvisor’s investment property calculator is that it provides analysis for whatever location you choose. All you have to do is choose the neighborhood on our map, and our calculator will do the rest. By using real estate comps as well as past market trends, it will give you all about the average pricing, cap rates, cash on cash return, and other statistics.
Related: How to Use Mashvisor’s Rental Property Calculator?
Our calculator does not only give you data on locations for the best real estate investments; it also gives you the best real estate investment strategies for that particular area. It will provide you with detailed comparisons between Airbnb rentals and traditional rentals. In this way it will help you choose the right rental strategy that compliments your goals.
Wait! That is not all we have got for you. Mashvisor’s rental property calculator will also help you decide on what type of property to go with! It does not stop there, however. Our special tool will also give you information on the property with the number of rooms that is most profitable!
After all, it is not hard to make money in real estate. All you have to do is get the right tools that will help you fulfill your investment goals. For that purpose, Mashvisor is your ultimate source. So, what are you waiting for? Join us now!