Before you buy an investment property, a comprehensive investment property analysis is crucial if you want to ensure that your new investment will be profitable.
One of the metrics to forecast is cash flow, which is the difference between rental income and rental property expenses. Cash flow real estate is a relatively low-risk investment, pays for itself, is attractive to lenders, and will help you build your real estate portfolio faster. Therefore, it’s important for every real estate investor to learn how to calculate rental property cash flow.
While you can use manual spreadsheets to calculate cash flow, it is laborious, to say the least. The best way to calculate cash flow is to use a reliable real estate cash flow calculator. In this article, I’m going to introduce you to the best real estate cash flow calculator for investors. But before we get into that, it’s important that you understand how much cash flow is good for rental property.
Related: Why an Investment Property Calculator Is Better Than Spreadsheets
How Much Cash Flow Is Good for Rental Property?
Like many metrics used for analyzing investment property, the answer to this question will depend on a number of factors including location, property type, rental strategy, and investment property financing. Determining the range for “good” cash flow is not as easy as it sounds.
While there are agreed-upon ranges for metrics like cash on cash return and cap rate, that’s not exactly the case for real estate cash flow. What real estate investors should aim for is positive cash flow. This is the only sure way to make money from your rental property. The more positive cash flow it generates, the higher the return on investment. You should avoid investment properties for sale with negative cash flow, particularly if you are a beginner real estate investor. Keep in mind that real estate appreciation is never guaranteed no matter the amount of research you do.
The best way to ensure that you get maximum cash flow is to use a reliable real estate cash flow calculator. Without further ado, let’s go over how to use a real estate cash flow calculator for analysis.
Related: Why Is Real Estate Positive Cash Flow So Important to Investors?
Using Mashvisor’s Real Estate Cash Flow Calculator for Analysis
A real estate cash flow calculator is basically a variation of the rental property calculator used to perform cash flow analysis quickly and accurately. With just a few input variables, cash flow will be calculated immediately. If you want to find the best cash flow investments, this is a must-have tool.
The real estate cash flow calculator estimates the rental property expenses and the expected rental income of the subject property based on the characteristics of the property, neighborhood factors, and rental comps. This results in a fairly accurate forecast of the cash flow that the rental property will generate.
With this tool, you are guaranteed to make money from your rental property right away and not simply wait for real estate appreciation. Mashvisor has one of the best real estate cash flow calculators for real estate investors because it allows you to do the following:
1. Estimate Monthly Rental Expenses
The first thing that Mashvisor’s real estate cash flow calculator does is it forecasts the costs associated with owning and managing a rental property. This includes one-time startup costs (inspection, repair costs, closing costs, etc.) and recurring monthly rental expenses (insurance, property taxes, maintenance, property management, etc.).
Mashvisor’s real estate cash flow calculator provides estimates for expenses and lets you adjust them, too.
The monthly rental expenses are the ones included in the cash flow equation and are predicted for both traditional and Airbnb rental strategies. The rental strategy of an investment property will affect the recurring rental expenses and, consequently, the cash flow. Mashvisor’s real estate cash flow calculator also allows you to add custom expenses and adjust estimated costs to fit your particular situation.
2. Estimate Monthly Rental Income
Mashvisor’s real estate cash flow calculator also provides accurate estimates for the second component in the cash flow equation – rental income. The rental income estimates are for both Airbnb and traditional rental strategies, which are usually different.
Again, you can adjust the rental rate up or down if you have any information that suggests that your rental rate might be different from the prevailing market rate or if you simply plan on charging a different rate.
Related: The Top 6 Strategies to Boost Your Rental Income as a Real Estate Investor
3. Calculate Cash Flow
By definition, a real estate cash flow calculator is for calculating the potential cash flow of an investment property. As a real estate investor, calculating cash flow is important because it shows how much money you’ll make from your rental business.
Mashvisor’s calculator will calculate cash flow based on the estimated rental income and rental expenses of the property. Any adjustments you make on the rental expenses and rental income will be reflected.
As you can see, Mashvisor’s real estate cash flow calculator calculates rental income, cash flow, return on investment, and more!
4. Calculate the Return on Investment
Cash flow alone is not sufficient to gauge whether an investment property will be profitable. This is because it doesn’t take into account the total cash invested. That’s why it’s important to calculate your potential return on investment before you decide to purchase a rental property. Naturally, you should buy a rental property with a good return on investment.
A good real estate cash flow calculator should be able to calculate more than just cash flow. Apart from cash flow, Mashvisor’s calculator computes the expected cap rate and cash on cash return of a rental property for both rental strategies. Moreover, it can be used to compute the traditional and Airbnb occupancy rate.
The Bottom Line
Investing in cash flow properties is widely considered the best way to invest in real estate as a beginner. Not only is it a low-risk investment but also tends to have a higher return and will help you grow your real estate investment portfolio faster. The best way to ensure that you are buying a positive cash flow property is to conduct a cash flow analysis using Mashvisor’s real estate cash flow calculator.
To get access to our real estate investment tools, click here to sign up for Mashvisor today.