Running numbers on a potential rental property you’re looking at buying is a must to find out your Return On Investment (ROI), but it doesn’t have to be hard. Once you know the formula, you can use the same one every time so you can run the numbers very quickly.
Here at Hipster, we do this a lot, and we want to share what we know with you! First, check out this video Ali made where she runs the numbers on a real rental property that she owns. Then, and this is the really important part, you can use the straight-forward and easy to use formula for calculating the numbers on a prospective rental property purchase with our free Rental Property Calculator! But watch this first —
Isn’t that easy? And you can do it too! Go here and get our FREE Rental Property Calculator. It’s an easy way to quickly calculate the expected returns on a potential rental property purchase. Or, you can use it to calculate what you are currently earning on a property you already own. You simply input a few numbers (such as purchase price, rental income, financing costs, and monthly expenses), like you saw Ali do it in the video, and you will quickly be able to see the anticipated Cap Rate and Cash-on-Cash Return for the property.
Brand new or not investing yet? Want a little more info on what ROI looks like in real estate investing and what to expect? We’ve got you covered!
What do you need to know about calculating ROI?
What is ROI?
ROI = Return on Investment. People calculate this in different ways and using different variables. Always ask someone what they used to determine their ROI on a property. For rental properties, you want to know your cash flow. Always use actual numbers in your calculations, don’t just guess the numbers or wing them. Only use estimates in your equation when absolutely necessary (which isn’t often). Allow room for errors (be conservative). Never include things like assumed appreciation, tax benefits, or bogus other unknown numbers that you can’t really know for sure.
When should you calculate ROI?
Anytime you want, but definitely before you buy an investment property! In fact, don’t just calculate it once, calculate it multiple times to ensure there are no mistakes. Initially you can calculate it just to give you an idea as to whether or not you should pursue a particular property, but once you decide on a property, spend more time really digging into the numbers and ensuring you are being as accurate as possible in your calculations.
What ROI should you expect for any property?
There is no right answer to this question except, “a positive one”. In general, your return should in fact be positive but it should also be positive enough so there is room for error. Don’t settle for a positive cash flow of $50/month because that doesn’t leave any room for any unforeseen circumstances (of which there usually are in real estate). Different markets and different property types will warrant different ROIs. You are best to understand the full picture of what you are buying in order to determine if the ROI is a good one or not.
Oh, and don’t forget to download the calculator…