Rental Property Calculator: Analyze Your Investment Returns

Rental property investment means buying real estate to hold, lease, and eventually sell for profit. Properties can range from single-family homes to large apartment complexes or commercial spaces. Larger or older properties may require more expertise and higher maintenance costs.

Why Invest in Rental Property?
Rental properties can provide steady monthly income from tenants and potential profit from property value appreciation. Compared to stocks, real estate is often more stable, offers tax benefits, and can hedge against inflation.

Key Responsibilities
Owning rental property isn’t passive. Landlords must manage tenants, handle repairs, and take care of paperwork and finances. Many owners hire property management companies (often for about 10% of rental income) to handle these tasks.

Quick Investment Rules

• 50% Rule: About half of rental income goes to operating expenses (not including mortgage).
• 1% Rule: Monthly rent should be at least 1% of the purchase price.
• 70% Rule: For house flipping, pay no more than 70% of the after-repair value minus repair costs.

Important Metrics

• Cap Rate: Net operating income divided by property price. Useful for comparing properties.
• IRR (Internal Rate of Return): Measures annualized return, factoring in the timing of cash flows.
• CFROI (Cash Flow Return on Investment): Shows the return from ongoing cash flows, important for properties with loans.

Things to Remember

• Higher IRR, CFROI, and cap rate are generally better.
• Real-world results can differ from projections due to market changes, unexpected costs, or rent fluctuations.
• Inflation isn’t always included in projections, so long-term numbers may be less accurate.

Other Real Estate Investments

• REITs: Invest in real estate through companies, offering passive income and diversification.
• Buy and Sell (Flipping): Buy, improve, and quickly sell properties for profit.
• Wholesaling: Find deals and sell the contract to another buyer without owning the property.

Tip: Use the Rental Property Calculator to analyze potential investments and make informed decisions.