Free Rental Property Calculator: Analyze Your Investment Property
The purpose of a rental property calculator is for investors and landlords to determine the current value of a property or evaluate a property they’re considering purchasing by calculating the return on investment (ROI), capitalization (cap) rate, and cash flow. While this can be a complicated process if you’re figuring out the numbers on your own, by using a calculator designed with specific investment formulas, the process becomes much more efficient.
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Use our free rental property calculator below to determine your investment property numbers, and then read our detailed breakdown of how these inputs and outputs affect your current or potential property purchase:
Note: This calculator is for estimation purposes only.
How the Rental Property Calculator Works
The rental property calculator, also called a rental income calculator or property analysis calculator, works by calculating data inputs like property purchase details, monthly operating expenses, and property income. These numbers include items like your property’s current value, mortgage rate, loan term, down payment, renovation costs, closing costs, and any expected property-related expenses.
After entering these numbers, the rental income calculator will calculate the property’s cash flow, cap rate, and return on investment. Knowing these numbers gives you an overview of whether the property you already own or the property you might purchase is a good investment.
Inputs for the Rental Property Calculator
To use the rental income calculator, gather information about the property to get accurate results. Ask your real estate agent to procure these figures from the current property owner if you are considering a purchase or review your finances if you are evaluating your own property. Here are the input numbers you’ll need to have:
Input Category | Specific Inputs for All Investors | Additional Inputs (if Applicable) |
---|---|---|
Purchase Details |
| Additional Inputs With Loan:
|
Monthly Operating Expenses |
| |
Income Details |
|
Purchase Details
The purchase details provide the foundation for the calculations by setting a baseline of how much the property is currently worth and determining whether it will be a sound investment based on the other investment factors of expenses and income.
If you are evaluating a potential purchase, consider whether the property’s value is commensurate with the income potential. If you are calculating the rental property value of an already owned property, you should be determining whether the current value of your property is helping you meet your financial goals.
Your calculator inputs will differ based on whether you’ve taken out a loan to purchase the property or paid the purchase price in full with cash. If you’ve decided to finance the property with a loan, calculate the monthly loan payments, interest rate, and length of the loan as part of your expenses. These numbers will affect the property’s ROI and cash flow. However, it will not affect the cap rate because the cap rate does not take the loan into account. As we continue through the inputs, we will further explain these differences.
Your first input for the calculator will be the current property value. If you are evaluating the property to determine whether it is a sound investment, you can enter the purchase price. If you already own the property, you will enter the current property value, also known as the fair market value, which is how much your property is currently worth.
To find the purchase price, refer to the property listing or confirm with your real estate agent what the property is listed for. If you have already purchased the property and have owned it for years, the value could have fluctuated from your original purchase price, and your property can be worth more.
Hire an appraiser to come out and give you an appraisal report, or you can run a comparative market analysis (CMA) on the property. CMAs are typically run by a real estate agent, but you can also complete one yourself. Read our article Comparative Market Analysis (CMA): Definition & How to Create and download our free CMA spreadsheet to get started on your own. 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 using Costar or LoopNet, both commercial real estate platforms.
Most rental properties will need a certain amount of repairs and renovations to make them suitable for renters. This can be anything—from replacing a toilet to completely gut-renovating an entire room or floor of your building. This number needs to be included because it is part of your cash investment when purchasing the property. If you purchase a turnkey investment property, repairs and renovations may not be applicable to your calculations.
Closing costs are expenses in addition to the purchase price and a down payment on the property. They include fees for the lender, notary, title insurance, title search, attorney, transfer taxes, etc. Generally, closing costs are between 2% and 5% of the purchase price, so if you’re purchasing a property for $250,000, expect closing costs to be between $5,000 and $12,500.
If you already purchased the property, review your settlement statement or closing disclosure that mortgage professionals are required to provide to buyers as part of the Real Estate Settlement Procedures Act (RESPA). This will give you a breakdown of the closing costs you paid to purchase the property. Otherwise, estimate the amount for your closing costs by figuring 2% to 5% of the purchase price. It’s best to err on the side of caution by estimating a higher amount for your closing costs.
Additional Inputs for Investors Using a Loan
If you did not pay or are not planning to pay for the property with all cash, you’ll need to reach out to a mortgage professional to speak about loan options. While there are many types of investment loans available, they will all have the same general requirements to include in the rental property calculator. Our calculator will operate similarly to a rental mortgage calculator by using the following variables to calculate your monthly mortgage payment:
This is the cash paid upfront by a buyer when purchasing a property. The typical down payment is 20% of the purchase price, but it can also be higher or lower depending on the type of loan. For instance, a $300,000 house with 20% down would require an initial down payment of $60,000. This amount needs to be factored into the purchase price as part of your cash investment in the property.
This is also known as your mortgage rate and is the interest you’ve agreed to pay on your loan over the loan term. Average mortgage rates are at close to 6% currently but fluctuate frequently. If you have not yet purchased a property, but have gotten a pre-approval for a loan, you should have been given a rate lock by your lender.
If you have already purchased your property using a loan, check your mortgage documentation to confirm your current rate. This is included in your calculations because the loan amount you’re paying annually will affect your return on investment and cash flow.
This is the length of time you will be paying off your loan, which can vary greatly. Most commonly, buyers will get a 15- or 30-year loan. If you’ve already purchased a property, the loan term can be found in your mortgage documentation. If you are in the process of purchasing, speak to a mortgage professional to determine the loan term length that is best for your financial goals. The loan term, loan amount, and interest rate will determine your annual mortgage payment, which needs to be considered as part of your rental investment calculations.
For more information on the process of getting a loan to purchase your investment properties, read our article Investment Property Financing & Requirements written by resident Fit Small Business finance experts Tricia Tetreault and Matthew Sexton.
Monthly Operating Expenses
Monthly operating expenses are the monthly items that will deduct from your income but are necessary expenses for your property. Unlike the purchase details, these numbers will be the same whether or not you took a loan to purchase the property.
It’s important to be accurate with these numbers to correctly calculate the return on investment, cap rate, and cash flow of your current or potential investment. If you own the property already, review your financial statements to input these numbers. If you are evaluating a potential property, ask your real estate agent if they can provide estimates of these numbers or do your own research based on public records and average calculations. We’ll also provide methods below that will assist in gathering this information.
This is the tax on the value of the property set by a local governing authority. To calculate rental income tax, call your local tax collector’s office, ask your real estate agent, or look at public records for your property taxes. A property tax estimate is also usually provided on property listings. They’re generally listed yearly, so just divide by 12 to get the monthly taxes.
Landlords need rental property insurance to protect themselves against liabilities caused by tenants or other unforeseen circumstances like crime or weather damage. Most national insurance providers like Allstate and State Farm offer rental insurance plans to landlords. The average insurance rate for landlords is about $1,300 per year, but it depends on the location, age, size, and type of policy you’re looking for.
If you currently have a rental insurance policy on the investment property, look up your plan to see your monthly payment. If you are evaluating the property as a potential investment, call your current homeowner’s insurance provider to see if they have a plan available and can give you rates.
Depending on the type of property you own or are considering purchasing, visit our articles on Rental Property Insurance: Providers, Costs & Coverage or Vacation Rental Insurance: Cost, Coverage & How It Works to find out more about your insurance options.
Your property management fees will depend on the type of properties you own or are planning to own and the size of your portfolio. Many landlords decide to manage their own properties in conjunction with property management software, but others use a property management company instead.
If you already have property management services implemented, simply review your finances to find how much you are being charged per month and use those figures in the calculator. If you’re planning on using a management company, you can factor in around 8% to 15% of the monthly collected rent, which is the average cost for services. Otherwise, review property management software costs and features if you want to manage the property yourself.
For more details on the management companies, visit our article 6 Best Property Management Software for Small Businesses.
This is what you spend monthly on property upkeep. Maintenance would include regularly scheduled items, such as lawn care, pest control services, common area cleaning, and changing detectors’ batteries. It will also include emergency maintenance repairs like clogged toilets or roof leaks.
For a more in-depth list of maintenance items, check out our article Rental Property Maintenance Checklist (+ Free Checklist Download).
Property owners can check their finances to see what they spend monthly on maintenance and add that figure to the calculator. Potential property owners can ask their real estate agents if they can get figures from the current owner regarding maintenance costs. However, there are two general rules of thumb to estimate your costs as well:
- 1% rule: Maintenance costs about 1% of the property value per year
- 50% rule: Maintenance and repairs are equal to 50% of your total operating costs
Decide which estimate is best for your monthly maintenance costs and input that into the calculator. It will deduct these costs as part of your monthly operating expenses.
These are the utilities that you, the owner, are responsible for, which may include electricity in the hallways of an apartment building or trash collection. These costs will vary depending on the size and type of the building as well as the location of the property. For property owners, review your utility statement to get this information. For investors evaluating a potential property purchase, ask the current owner or have your real estate agent inquire about the average monthly utility costs to get an estimate.
Income Details
The final section of the calculator requires inputs pertaining to your property income. This section is very important as it will affect the cash flow and ROI calculator outputs. For the most accurate results, use the rental income calculator to get all 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.
For owners evaluating their current properties, look thoroughly at your property financial statements to accurately portray these numbers. If you don’t own the property yet, but are evaluating its potential, find these numbers through your real estate agent or the current property owner’s records. You can also use the calculation tricks we’ve provided below for each input variable:
The expected monthly rent is the gross rental income the property is bringing in or is expected to bring in. It includes the income from each unit in the building collected from the tenants each month. For current property owners, visit the ledger from your property and add the total rent collected for the month.
However, if you’re evaluating a property for purchase, there are several ways you can estimate rental income monthly. You can get the rental prices from the current owner or estimate how much you would charge for rent.
A common rule of thumb for calculating your monthly rental income is using the 1% rule. Simply multiply the property value by 1% to get the rental income. For example, a $300,000 property using the 1% rule would be $3,000 in rent. Keep in mind that it’s important to factor in market trends, amenities, seasonality, and rental laws when calculating this figure.
To learn about estimating your rent, read our article How Much Should You Charge for Rent? (+ Free Calculator & Tips).
Gather additional income from other assets in your building. This can be a charge for parking, laundry, vending machines, or gym memberships. While charging for laundry may not seem like a huge money-maker, that income will increase each month. For example, if you charge $2.50 per load of laundry with 20 tenants doing two loads per month, you’ll be able to earn an extra $100 per month, which is $1,200 per year.
When you tour the property, consider any potential income-producing amenities and ask the current owner how much they charge per month. If you currently own the property, review your financial reports to ascertain this information.
Your vacancy rate is the number of vacant units in the building to the total available units. This metric is valuable in determining whether a rental property is performing well and if it will be a profitable investment. The vacancy rate formula is 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%.
Vacancy Rate Formula = # of Vacant Units x 100 / Total # of Units
The goal is to have close to a 0% vacancy rate, but with a new rental property that has no current tenants, you’ll have to work on building your occupancy. However, if you already have a property with tenants or are purchasing a property with existing tenants, your vacancy rate may be lower. Speak to the current owner to see the current vacancy rate in the building or, if you already own the building, review how many units are currently vacant. Then, use the above formula to calculate the vacancy rate for your property.
Outputs for the Rental Property Calculator
The ultimate goal of the rental property calculator is to evaluate whether a property is a good investment based on the property’s ROI, cash flow, and capitalization rate (cap rate). These results, also called outputs, will be calculated with specific formulas using your monthly operating expense and purchase detail inputs.
If you’re evaluating a potential property purchase and these outputs are not where you want them to be, it might be a sign to move on to another property. However, it could also mean that the property, as it is now, is not capitalizing on certain financial aspects.
For instance, if comparable properties in the same location are charging $2,500 per month in rent and the current owner only charges $1,500, these output variables might be lower than they should be. Under your new management, you can raise the rent to increase your cash flow and return on investment.
Use our gross rent multiplier (GRM) calculator to compare multiple properties and understand the potential profitability of an investment. This multiplier will also estimate the payoff period of your property. Check out Gross Rent Multiplier (GRM) Calculator & How to Use It for more information.
Continue reading to understand more about each of these output variables, the formulas associated with them, and how they will help determine if you’re making a sound investment decision.
Return on Investment
A return on investment, commonly known as ROI, measures how much profit you make—or have made—on an investment property displayed as a percentage. Calculating return on investment for rental properties is valuable for all investors, as this metric will help compare properties to one another or evaluate their current properties. It measures how well the rental property is doing and can be a great way to decide which property to purchase or how much you should offer on a potential property.
To learn how to calculate ROI for your rental property, take your annual return and divide that by your total cash investment. The calculator will do this for you, but if you want to do it on your own, you can calculate the return on your rental property by subtracting your expenses from your total rental income. Then you divide this by your total investment. The ROI formula written with your inputs and outputs will look like this:
ROI (without loan) = [(Monthly Rental Income + Other Monthly Income) – Vacancy Rate] x 12 months –
(Monthly Operating Expenses x 12 months)
_______________________________________
Purchase Details
If you have a loan or are planning on taking out a loan to finance the purchase, you will have to include that as part of your calculations:
ROI (with loan) = [(Monthly Rental Income + Other Monthly Income) – Vacancy Rate] x 12 months –
(Monthly Operating Expenses x 12 months) – (Monthly Loan Amount x 12 months)
______________________________________
(Repairs/Renovation + Closing Costs + Down Payment)
A good ROI on an investment property is generally 10% or higher. ROI is affected by several factors like property management fees, rental income, mortgage payments, homeowner association (HOA) dues, insurance premiums, and other items directly related to income and expenses. Investors can increase their ROI by taking a deep dive into their expenses to reduce costs. Also, if you’re potentially purchasing a property, consider making improvements that will increase your property value and, therefore, your ROI when renting it to tenants.
Cash Flow
Cash flow is another critical output found by using our free rental income calculator. Simply put, cash flow is the money flowing in (rental income) and flowing out (expenses) of your investment property. The cash flow output will differ based on whether you’ve taken or are planning to take out a loan to pay for your property. This is because the loan payment will be considered as money flowing out and will decrease your cash flow monthly and yearly.
To figure out the cash flow, the calculator starts with your rental income and subtracts your operating expenses and mortgage payments. Here is the formula for calculating cash flow:
Cash Flow (without a loan) = [(Monthly Rental Income + Other Monthly Income) – Vacancy Rate] x 12 months – (Monthly Operating Expenses x 12 months)
Like the ROI, the cash flow rental calculator impacts your loan payments because they are considered cash deductions.
Cash Flow (with a loan) = [(Monthly Rental Income + Other Monthly Income) – Vacancy Rate] x 12 months – [(Monthly Operating Expenses x 12 months) – (Month Loan Payment x 12 months)
Cash flow is either categorized as cash flow positive or cash flow negative. 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.
If you’re purchasing a property with a loan, consider putting more money toward the down payment to increase the cash flow. If you’re purchasing a property with cash or have already done so, look at your monthly expenses and see if there are areas where you can reduce them, like shopping around for property management companies or using less expensive software.
Capitalization or Cap Rate
The capitalization rate, commonly known as 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 property type, but a good cap rate ranges from 4% to 10% or higher. Typically the higher the cap rate, the more profitable the investment, but also the riskier the investment.
Unlike the ROI and cash flow outputs, the cap rate does include mortgage debt, so only one formula is needed whether or not an investor decides to take a loan on the property or not:
Cap rate = Rental income + Additional income – Vacancy Losses
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Property Value
The cap rate of a property shows the rate of return on investment (ROI), meaning how much the owner can gain or lose if they purchase the property. It’s an extremely important figure that allows you to compare investment scenarios or investment properties.
For more information on how a cap rate works and what is considered a good cap rate, check out our in-depth cap rate guide and use our cap rate calculator.
Who Should & Should Not Use a Rental Property Calculator
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 sound investment. 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 deciding whether to purchase an investment property. Other investors use it to determine if they should keep or sell their current investment property. Specifically, a rental property ROI calculator is right for:
- Duplex, triplex, fourplex, and other multifamily real estate investors
- Apartment building investors
- First-time and 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
- Landlords with a large portfolio of properties
- Investors looking to purchase a vacation property
On the other hand, a rental income calculator is generally not right for fix-and-flip investors who purchase a property to rehab it and sell it for a profit. These 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 calculator is an extremely useful tool for investors to calculate the ROI, cap rate, and cash flow of a current property or potential property purchase. Knowing these calculations will put investors and landlords in a better position to evaluate investment options and continue improving the profitability of their investments.