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Free rental property calculator that uses the formula NPV = [CF^1 / (1 + R^1)] - PC. A rental ROI calculator that helps analyze and compare investment rental properties.
Result
Return (IRR) | 16.19% |
---|---|
Total Profit when Sold | $523,547.85 |
Cash on Cash Return | 918.5% |
Capitalization Rate | 7.03% |
Total Rental Income | $673,908.99 |
Total Mortgage Payments | $287,784.00 |
Total Expenses | $201,527.81 |
Total Net Operating Income | $472,381.18 |
Mortgage
Vacancy
Management
Property Tax
Insurance
HOA
Maintenance
Other Cost
FIRST YEAR INCOME AND EXPENSE | ||
---|---|---|
MONTHLY | ANNUAL | |
Income | $2,200.00 | $26,400.00 |
Mortgage Pay | $1,199.10 | $14,389.20 |
Vacancy | $110.00 | $1,320.00 |
Management Fee | $0.00 | $0.00 |
Property Tax | $250.00 | $3,000.00 |
Total Insurance | $125.00 | $1,500.00 |
HOA | $0.00 | $0.00 |
Maintenance Cost | $208.33 | $2,500.00 |
Other Cost | $41.67 | $500.00 |
Cash Flow | $265.90 | $3,190.80 |
Net Operating Income (NOI) | $1,465.00 | $17,580.00 |
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Real estate can be one of the most profitable investments available. This investment option is popular with millions of investors worldwide because of the multiple ways real estate can generate returns. Rental properties can generate consistent rental income and build value through appreciation over time.
Tony is an investor who wants to purchase a rental property. He finds five properties that he feels are good candidates for his portfolio. Each property has a different price, condition, and location. These differences will affect the initial cost and rent potential. Tony needs a tool to help him analyze each property to determine the best investment option.
Many variables can affect the return on a rental property, including location, local job market, age and condition of the property, and other expenses. Not every property makes a good rental property. Investors can use a rental calculator to evaluate each property to avoid making a bad investment.
Most real estate professionals use IRR (internal rate of return) to determine if a property is worth the investment. This calculation is one of the most complicated investing formulas to learn, so having a good quality rental home calculator can save you a lot of time and headaches.
The formula to calculate the IRR of an investment property is:
$$NPV = \frac{CF¹}{1 + R¹} - PC$$
The confusing thing about this formula is that you aren’t trying to solve for NPV. To find the rate of return, you need to solve for R to get the NPV to equal zero.
Keep in mind that this formula is for just one period. Since real estate is held over many years, this formula needs to be repeated for each year. The formula to calculate IRR over several years will be
$$NPV = \frac{CF¹}{1 + R¹} + \frac{CF²}{1 + R²} + \frac{CF³}{1 + R³} - PC... etc.$$
If the property is held for 20 years, the IRR formula will need to be repeated 20 times.
Our rental property value calculator has four main areas where information is provided—purchase, operating expenses, income, and sale price. Each section focuses on the various aspects that drive the profitability of a rental property.
Step 1: Complete Purchase Section: In this section, you’ll provide information related to the purchase of the property, including the purchase price, loan details, additional costs, and initial repairs.
Step 2: Fill out the Income Expenses Section: This is where you will enter the monthly income you expect to receive from your tenants. There are additional fields to factor in vacancy rates and the cost of hiring a professional property manager.
Step 3: Complete Recurring Operating Expenses Section: Recurring expenses include any costs associated with operating the rental property after the initial purchase and repairs. This includes property taxes, insurance, and regular maintenance.
Step 4: Complete Sell Section: If you know the future sell price, you can enter this information by checking the yes box. However, in most cases, you won’t know what the property will be worth in the future. You can estimate the yearly value appreciation if you don’t know the future price.
Step 5: Click "Complete" and Review Results: The calculator results will provide a complete analysis that includes the IRR, total profit, and monthly and annual cash flow.
Let’s say you’ve decided to start investing in real estate. You find a single-family home in your neighborhood that you believe would make a great rental property. You want to analyze the property to find out if it would be a profitable investment.
The sale price of the property is $150,000. You will pay cash and convince the buyer to sell the house to you for $125,000. The closing costs are $5,000. You’ll also need to remodel the kitchen, which will cost $15,000. This repair will increase the value of the home by $25,000.
You believe that you can rent out this house for $800 per month with no additional income. You anticipate that the rent will increase 3% each year to match inflation. You expect your property to be vacant 5% of the time a year. Property management will cost 10%.
You do a little research and find out the cost of the various operating expenses, including property taxes ($500 annually), insurance ($350 annually), HOA fees ($0), and maintenance ($1 000 annually). It’s safe to assume these costs will increase 3% per year.
You can’t predict the future, so you don’t know what the house will be worth in the future. However, you plan to hold the property for a minimum of 15 years. We’ll assume that the property will appreciate 3% annually and that the cost to sell will be 10%.
Once you hit the Calculate button, you’ll see that your anticipated IRR is about 7% per year, with a total profit of $183,577.
Making money as a real estate investor is key to evaluating rental properties carefully. This calculator provides the investor with the tools they need to understand a real estate deal's financial aspects accurately. Here are some tips to help make the most of our real estate investment return calculator.
No Memorizing Formulas: Our rental property calculator instantly uses dozens of different formulas to produce the results. These calculations would take many hours if done manually. This calculator doesn’t require the memorization of any formulas.
Analyze Multiple Properties: Real estate investors will often analyze dozens of potential properties to find the ones that are going to be profitable rental properties. This calculator lets the investor analyze many properties in a short period of time.
House Flipping: If you plan to flip a house (meaning you will purchase, repair, and resell it), you can still use the calculator to find the IRR. All you have to do is enter $0 into the fields in the income and operating expense section.
Understanding Leverage: A real estate investor can increase their IRR and cash on cash return by financing a larger percentage of the mortgage. This increases the risk for the investor since more money is borrowed. However, the investor benefits from earning a return on the borrowed money.