Rental Property Calculator
Calculate profits on your next rental property project
Rental Property Calculator Guide
This section is designed to help you understand every element that goes into our rental property calculator.
Standard Costs When Purchasing A Rental Property
When it comes to down payments, bigger is usually better. This is because the bigger your down payment, the smaller your monthly mortgage repayment will be. This can save you a large amount in interest that you don’t have to pay on the loan. It also means that your monthly expenses for the rental property will be lower, resulting in more cash flow every month.
Interest Rate (%)
The higher the interest, the more you will pay to your loan provider over the full course of the loan (usually 30 years).
With that being said, it is common for investment property loans to have slightly higher interest rates than a standard home mortgage, due to the increased risk involved with managing a property and its tenants.
Loan Terms (Length of Loan)
In this day and age, most people take out 30 year bonds for rental properties. However, it is also common to use a 20 year loan, if you are in good financial standing and your bank/provider is open to negotiation.
Closing costs are typically paid when you complete the purchase of your investment property. Usually, closing costs will range from 2-5%. To be on the safe side, we recommend using 3-4% of the property value for the closing cost amount.
Recurring Operating Expenses for Rental Property
The first thing you need to know about property tax is that you can deduct all the property expenses from the rental income you receive, before working out the taxable earnings from the property. Crucially, your mortgage payment is one of these expenses, which can greatly reduce the amount of tax you end up paying.
The second thing you need to know is that you are then taxed based on the tax bracket that you fall into. So if you make $4000 per month, and your rental property generates $1000 per month (after expenses are deducted), you would essentially fall into the $5000 dollar per month tax bracket, and this is what you would apply to the property.
Pleaste note – If the property is purchased in the name of a company, the tax implications would obviously differ.
There is no exact percentage for property insurance, as it depends on the risk profile of the particular property.
However, it is worth pointing out that in 2019, the average cost for rental property insurance was $1083.
So, if you’re unsure of what to put in this field, $1100 is an average number that you can use as a placeholder. Just keep in mind that your final property insurance amount will obviously be different.
Homeowners Association (HOA) Fees
HOA Fees are only applicable to certain types of properties (usually apartments and condos mainly), but some single family homes may also have HOA fees.
Broadly speaking, HOA fees tend to range from $100 to $500, depending on the property.
The amount you spend on property maintenance may vary each year, but you should budget for at least 1% of the property’s value. This is a rule of thumb that many landlords will use when calculating the property maintenance cost.
Additional Costs To Budget For
Vacancy Rate is the percentage of the year that you can expect the property to be without a tenant.
It is generally recommended to apply a vacancy rate of 5% or more for an apartment or single family home. This is a very real expense for landlords and it should be factored into your rental property calculations.
Property Management Fee
Typically, the property management fee will be between 4-12 percent of the gross rental income.
Alternatively, certain property management companies may charge a flat monthly fee.
Ultimately, the onus is on you to find a professional property management company that charges a fair fee, if you decide to make use of one.
Rental Property Calculator FAQ
How do you calculate rental property profit?
For rental properties, it is often more helpful to think in terms of the net operating income, mainly because it is relatively easy to calculate, and it’s also easy to workout if you eventually sell the property.
The basic formula for net operating income is: Annual Rental Income – Annual Property Expenses
So if you have a property that generates $20,000 in rental income, and the total expenses for the year come to $12,000, your net operating income would be $8000. You could call this $8000 in profit.
Then if you decided to sell the property, you can calculate the net operating income by adding all the income made from the property (including the profit from the sale and rental income for the duration of your ownership) and deducting all the expenses incurred during your ownership. The final total can be treated as profit.
What Is Cash Flow From Rental Property?
Cash Flow from rental property is the amount of cash you are left with, after subtracting the total income from total expense. Typically, you would calculate cash flow for rental properties on either a monthly or yearly basis.
Monthly Cash Flow = Total Monthly Income – Total Monthly Expenses
Annual Cash Flow = Total Annual Income – Total Annual Expenses
What is a good vacancy rate for rental property?
Put it this way. A higher vacancy rate indicates that the property will spend more time without tenants. During these periods without tenants, the cost of rent will fall onto the property owner.
Typically, a vacancy rate of 5% is a good guideline for single family homes and apartments. Of course it could be lower, but it could also be higher if your tenants experience financial difficulties or decide to move.
Ultimately, it is in your best interests to assume a vacancy rate between 5 and 7 percent. If you hold the property for a long time, this is a cost that will almost certainly impact the profitability of your rental property, so it must be factored into your rental property analysis.
How Do You Analyze A Rental Property?
First off, you need to compare the cost of the property with the expected rental income that it is likely to generate.
One of the shortcuts you can use is called the 2% rule. This rule suggests that a rental property is a good investment if the rental income equates to 2% (or more) of the property’s price. So if you are contemplating a $300,000 property, the rental income would need to be $6,000 or more to meet the 2% guideline.
Even though the 2% rule is a useful shortcut, it doesn’t give you all the details you need to make a confident investment decision. Fortunately, our rental property calculator should help you dissect the deal in much greater detail. It factors in all the major costs that you can expect to encounter as a newly appointed investment property owner.
Is owning a rental property worth it?
The goal of our rental property calculator is to help you determine if your target rental property is actually worth it. In some cases, you might find that the numbers don’t quite add up, while in others, you could see enough green flags to pull the trigger on the deal.
If the numbers are favourable, a rental property can become a passive income cash cow that requires very little time and energy to manage. Better yet, the price of the property is likely to increase over time, which could generate a sizable profit if you decide to sell the property later down the line. In other words, you get the benefits of monthly cash flow and the benefits of an appreciating asset combined into one package.
In the end, it’s hard to fault an investor with ambitions of owning rental property. It remains a powerful investment vehicle with amazing potential for generating positive cash flow that could last a lifetime, and beyond. So from our perspective, it’s definitely worth it if the numbers add up. Our rental property calculator can help you understand if that is the case.
Additional Real Estate Calculators & Resources
ARV Calculator: Quickly assess the After-Repair Value of a property with our user friendly ARV Calculator.
Hard Money Calculator: To figure out the ROI of a fix and flip, you need a comprehensive Hard Money Calculator. It allows you to workout the monthly repayments, analyze net operating income, calculate the return on investment when you sell the property.
BRRRR Calculator: Each step in the Buy, Rehab, Rent, Refinance, Repeat (BRRRR) requires detailed analysis before you proceed with the deal. Fortunately our BRRRR Calculator breaks the process down into simple phases that are pretty easy to understand.
Home Appreciation Calculator: To workout how much your home will be worth in the future, you simply need to know the interest rate and how long you expect to hold the property for. With our simple Home Appreciation Calculator, you can workout the future value of your home very quickly.
Cap Rate Calculator: Cap Rate is a simple formula that helps investors work out how profitable an investment property is likely to be. Our Cap Rate Calculator makes this easy to do, in very little time.
FlipScout: FlipScout is a free search engine for property flippers. It lets you find properties that you can earn the highest return on when completing a fix and flip or fix-to-rent project. You can learn more about FlipScout here.