A rental property calculator helps a property owner determine the return on investment, cap rate, and cash flow on a rental property. Inputs you’ll need include property value, monthly income, property expenses, and vacancy rate. Investors typically use a rental income calculator to evaluate a potential rental property and decide if it’s a good investment to purchase.
To precisely calculate the return on your investment, reach out to Visio Lending. Visio Lending offers rental property loans up to $2MM with 30 year fixed and floating interest rate options. Fill out an application online and work with their team to get a quote.
How the Rental Property Calculator Works
The rental property calculator, also called a rental income calculator, works by calculating data such as your property’s current value, your mortgage rate, loan term and expected monthly rent. It also includes how much you paid for the property, including your down payment, renovation costs, and closing costs, as well as any expected property-related expenses. After entering these numbers, the rental income calculator will calculate your cash flow, your cap rate and your return on investment.
The rental property calculator gives you an overview of your potential return on investment and cash flow so you can decide if the investment property is a good investment. It can also be used on a property that you already own and want to assess its value. The article will walk you through how the rental property calculator works; don’t worry if you don’t know all of the input numbers, because we provide some average information for inputs that may not be commonly known, like your closing costs.
Rental Property Calculator Inputs
When using our free rental property calculator, you will be prompted to input your current property value, cash investment, mortgage rate, term, closing costs, expected monthly rent, estimated property expenses, and vacancy rate.
The details for each input into the rental property calculator are:
Current Property Value
The first input is your current property value, also known as fair market value, which is how much your property is currently worth. You can find this out by hiring a professional appraiser to come out and give you an appraisal report. If you have a residential property, you can use the Zestimate on Zillow, or call a real estate agent to run a comparative market analysis (CMA) on your property.
If you own a commercial property, you should use an appraiser, or ask a commercial real estate broker to tell you how much the property is worth by using Costar or Loopnet, which are both commercial real estate platforms.
Keep in mind that your current property value isn’t necessarily the same as the purchase price of the property. You could have already purchased the property and the values have fluctuated, or the current owner could have purchased the property years ago and it went up in value and is now worth more.
Total Cash Investment for Your Rental Property
The next input is your current total cash investment in the property, which includes any renovation costs as well as your down payment if you purchased the property using financing. Otherwise, if you purchased (or plan on purchasing) the property using all cash, then your cash investment will be the purchase price of the property. This will be found on your HUD 1 settlement statement if you already bought the property. If you haven’t purchased the property yet, it will be the amount that the seller agrees to sell the property for.
On our calculator, you will be able to select yes or no in response to if you used a loan to buy a rental property. Then, we will give you some average numbers that auto-populate in case you’re not sure how much your cash investment was. The average down payment on an investment property is 20 percent.
Mortgage Rate on Your Rental Property
Your mortgage rate is another input used in the rental property calculator. It’s the interest rate that you agreed to pay on your loan. If you’re not sure what your mortgage rate is and you haven’t purchased the property yet, check with your lender, because they should have given you a rate lock where you’re guaranteed a specific interest rate over a given period of time, usually 30 to 60 days.
If you already purchased the property, then the interest rate will be on your mortgage documents. You can also find investment property rates that are updated monthly in our investment property loans article. Our calculator uses an average fixed rate of 5 percent if you’re unsure of your current rate. Keep in mind that 5 percent is an average rate, and we can’t predict future rate hikes on adjustable rate mortgages. A rate hike could potentially increase your total costs and decrease your ROI.
Loan Term for Your Rental Property Mortgage
Your loan term is the length of your loan. Typical loan terms for rental properties are 15, 20 or 30 years. Our free rental property calculator uses a fully amortized loan with a term of 15 years for its calculations (if you’re not sure what your exact loan term is). However, you can also adjust this term to 20 or 30 years in the rental property calculator. If you have a balloon loan, initially it could result in better cash flow because of the initial lower monthly payments.
Closing Costs on Your Rental Property
Closing costs are expenses in addition to the purchase price and down payment of the property. Closing costs include lender fees such as loan origination fees. They also include notary fees, title insurance, title search fees, attorney fees, transfer taxes, etc. Closing costs average 2 percent to 5 percent of the purchase price of the property. If you’re unsure of your closing costs, the rental income calculator will assume they are 5 percent (which is on the conservative side).
Expected Monthly Rent from Your Rental Property
The expected monthly rent is pretty straightforward. It’s the gross rental income that the property is currently bringing in or what it is expected to bring in. It includes the rental income from tenants and any other additional income from parking, coin-operated laundry, vending services, etc.
Estimated Property Expenses from Your Rental Property
Your estimated property expenses are your monthly expenses associated with the property. They include things like your operating expenses as well as your monthly mortgage payments. Keep in mind that your mortgage payment isn’t an operating expense, but it’s in this category because it’s one of your largest monthly expenses and will help you determine cash flow and ROI.
Typical operating expenses include:
- Property Tax: This is the tax on the value of the property set by a local governing authority. You can call your local tax collector office, ask your realtor, or look on public records for your property taxes. They’re generally listed yearly, so just divide by 12 to get the monthly taxes.
- Property Management Fees: These can vary from 8 percent to 15 percent or more, but we use an average of 10 percent of the collected monthly rent.
- Maintenance: This is what you spend monthly on property upkeep. Generally 1 percent of the property value is spent yearly, so just divide that number by 12 to get your monthly costs.
- Common Area Utilities: These are the utilities that you, the owner, are responsible for and may include electricity in hallways of an apartment building or trash collection.
Vacancy Rate of Your Rental Property
Your vacancy rate is the ratio of vacant units in the building to the number of total available units. It’s only used on properties with two or more units. For example, if you have two vacant units in a 10-unit building, then your vacancy rate is 2/10 = 20 percent.
For the most accurate results using the rental income calculator, get all of the numbers together beforehand. Have your vacancy rate, operating expenses and monthly rental income in front of you, so you can easily input the correct numbers.
Rental Property Calculator Outputs
Our rental income calculator calculates your return on investment (ROI), cash flow and cap rate. It calculates these outputs based on the inputs you entered in the calculator. These results, also called outputs, will help you determine if the investment property is a good investment for you.
Return on Investment of Your Rental Property
A return on investment measures how much profit you make on an investment property displayed as a percentage. It measures how well the rental property is doing, and can be a good way to compare other income-producing properties when deciding which one to purchase or how much you should offer.
A good ROI on an investment property is generally 10 percent or higher. To figure out your ROI, you calculate your annual return and divide that by your total cash investment. The calculator will do this for you, but if you’re curious, you can figure out your annual return by subtracting your expenses from your total rental income. Then you divide this by your total investment. Our calculator calculates your ROI for 1, 5, 10, 15 and 30 years, so you have an in-depth analysis of the property over a long period of time.
Cash Flow for Your Rental Property
Cash flow is another important output found by using our free rental property calculator. To figure out the cash flow, the calculator starts with your rental income and subtracts your operating expenses and mortgage payments. Cash flow is typically calculated on a monthly basis.
If you’re buying an investment property, you typically want a cash flow positive property, which means that at the end of each month, you’re making a profit after all rents are collected and all expenses paid. Our rental property ROI calculator shows you monthly and annual cash flow.
Cap Rate for Your Rental Property
The cap rate is a rate that helps investors evaluate a real estate investment. The cap rate formula is the net operating income divided by the property value. Cap rates vary by location and type of property, but typically a good cap rate ranges from 4 percent to 10 percent or higher. Typically the higher the cap rate, the more profitable the investment, but also the riskier the investment.
For more information on how a cap rate works and who should use it, check out our in-depth cap rate guide, which will also show you how to calculate your property’s cap rate.
Who a Rental Income Calculator Is Right for
A rental property ROI calculator should be used by a real estate investor who wants an easy solution to finding out if a rental property is a good investment. It’s typically used to assess a purchase opportunity and to assess retaining an investment property you already own.
It’s generally right for long-term investors who want to push a few buttons and have things like the property’s cash flow and ROI calculated for them. Most investors use a rental property cash flow calculator before they decide whether or not to purchase an investment property. However, other investors use it to decide if they should keep or sell their current investment property.
Specifically, a rental property ROI calculator is right for:
- Duplex, triplex, and other multifamily real estate investors
- Apartment building investors
- Single family home investors
- Landlords who will be managing the property themselves
- Investors who want to sell a property and be able to give the potential buyer all of the figures on the property, such as cash flow
“I own a few rental properties and use a rental property calculator. I wish I had it when I purchased my properties. During our first rental experience, we didn’t properly assign payment dates to the rent and utilities. Thus, we had to lay out large amounts of money for taxes and utilities, essentially fronting the costs every month that first year. A rental property calculator will help calculate the ROI and cash flow based on our operating expenses, such as taxes and utilities.”
– Brad Biren, Attorney, Johnston Martineau
“I own a few rental properties and use a rental property calculator. I wish I had it when I purchased my properties. During our first rental experience, we didn’t properly assign payment dates to the rent and utilities. Thus, we had to lay out large amounts of money for taxes and utilities, essentially fronting the costs every month that first year. A rental property calculator will help calculate the ROI and cash flow based on our operating expenses, such as taxes and utilities.”Who a Rental Income Calculator Is Not Right For
A rental income calculator is generally not right for fix-and-flip investors who purchase a property with the intention of rehabbing it and selling it for a profit. These types of short-term investors usually don’t care about rental income or monthly cash flow. Instead, they focus on after repair value (ARV) and how much ROI they can make by selling the property as quickly as possible.
Bottom Line
A rental property cash flow calculator is used by investors to decide if a rental property is a good investment based on the property’s potential cash flow, ROI and cap rate. This rental property cash flow calculator uses inputs such as current property value, down payment and loan term to give outputs such as ROI, cash flow, and cap rate.
Get a quote from Visio Lending to more accurately calculate your ROI. Visio Lending offers loans for rental properties on amounts up to $2MM with both fixed and variable 30 year interest rates. Fill out a form online and work with the Visio team to get a quote.
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