Getting a good ROI on your real estate investment is one of the best ways of becoming a wealthy investor. Whatever your purpose is for getting into real estate, either to become a landlord or just an investor who wants profits after a period, getting the right equipment to help you achieve your aims is essential. One of them is an investment property calculator.
Back then, people were stuck with Excel to filter through relevant information, data on real estate to make an informed decision before investing their money. Don’t get it wrong; nothing was wrong with using Excel, but people wanted something faster and more accurate than the analysis Excel churned out. You must take a look at property buying comparison spreadsheet.
Let’s go down on what makes the investment calculator stand out and its features.
The Investment Property Calculator
An investment property calculator is an essential tool used to determine the values needed for a property valuation. The values required include the cash on cash return and cap rate necessary to decide on a property’s accurate ROI.
For the calculator to give you the metrics you need, including the cap rate and cash on cash return, there are three different factors you need to consider.
- All expenses (recurring and one-time payments)
- Financial information about the investment you’re making (whether you’re making investments through cash or mortgage; the type of mortgage involved, and the details)
In older times, to get the ROI using these values, the investor would have to painfully input the values one after another on Excel by converting the expenses into equations. These equations would contain the value invested, the current market rate of the property, and other specific values which can count as expenses.
These days, calculating the ROI is now easy with the investment property calculator. You need to input the values in the dedicated positions on the calculator and get the desired results in no time.
Features of a Good Investment Property Calculator
Some features make an excellent property calculator stand out from others. Two major classes are:
- A means to integrate the calculator with other tools that can bring an added feature of locating houses for sale, as well as offer suggestions on the best neighborhoods where you can put your investments in
- Extra features to make custom modifications to your calculator so it can suit your needs
An excellent rental property investment calculator should give you the right to enter some values, including:
- Cash on Cash Return
This value is essential to pinpoint the ROI expected from the amount injected into the property and not the actual price value of the house.
In other terms, the cash on cash return value is dependent on the method you used to finance the purchase of the house. This kind of manipulation can only be possible with a calculator with integrative abilities.
- Cap Rate
This value is obtained by combining the actual property price and the net operating income. It is also an integral value needed to get the ROI and the total risk associated with the property.
Getting this value is tricky, and not many people know how to calculate it manually. The calculator is necessary to take away the stress of trying to calculate it manually using a spreadsheet.
- Cash Flow
The cash flow is the total amount that comes to the investor after deducting every deductible, including the expenses associated with the property. In essence, this is the net profit going directly to the investor’s portfolio.
Many analysts have determined that using a rental property cash flow calculator is crucial to get accurate results with ease and in the shortest time possible for a rental property. This calculator is designed to have a segment where you can input all the expenses incurred on the property.
Determining the cash flow manually is risky because you can forget to add some expenses, which may look small but impact the final cash flow to the investor.
- Return on Investment
As an investor in real estate, your primary focus may be on the purchase of properties, majorly for rental purposes. Whether it’s long-term or short-term profits you’re targeting, the ROI should be sizable enough in both instances.
The cap rate and cash on cash return values are essential for determining profits shortly, but your ideal calculator should be able to factor and get ROI in the long term view.
A majorly used property calculator is the real estate rental calculator, which helps investors calculate and get an accurate ROI on all types of rental properties they acquire. The calculator has many features that you can use to feature different factors of the kind of rental property you have in mind.
- Rent Cost Ratio
The rent cost ratio is a significant value that can help you compare the potential ROI of your property with other properties of similar values in the same area.
The cost to be determined is the entire amount invested into the property, including the amount incurred as expenses like renovations and general repairs.
The ideal investment property calculator should factor both the rent cost ratio and cash flow to help you determine your profits. A reasonable rent cost ratio is any percentage above 1%.
- The 50% Rule
The 50% rule is an accumulation of all the operating expenses relative to the property’s operating income.
An ideal condition is that the entire operating expenses should be 50% or less and is dependent on the state of the property and how long it has been standing.
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Final Thoughts
An investment property calculator is an invaluable tool that helps real estate rental property landlords determine their ROI accurately. Running the numbers manually will always leave room for errors, which can lead to preventable mistakes.
Using these calculators effectively delivers results by calculating different values, including the cap rate and cash on cash return, which will help you make the best investment decisions for your portfolio. That way, you’ll determine whether a property is worth your time or not.
