Analyzing the performance of a real estate investment is very important to an investor when determining your cash flow, profit and overall operating expenses. However, with all of the numbers and calculations it’s hard to know which formula to follow and when to use these mathematical equations. So become familiar with the following tools to analyze your investment properties as you learn the true ROI and find your gross potential income, among other calculations, as we breakdown these 5 real estate investment calculations.
1. True ROI Calculator
Use a true ROI calculator to determine the return on your real estate investment in just a matter of minutes. Inserting the numbers such as, property price, down payment, mortgage rate, taxes, HOA and rent will calculate the ROI (return on investment) of that property. Try this calculator below:
2. Simple Mortgage Calculator
Below is an actual mortgage calculator Try it out to see what your projected mortgage payment would be by plugging in the numbers.
3. Gross Potential Income – A gross potential income is an expected income on a property, determining how much that property will produce without any deductions for expected vacancy or credit loss.
Using a standard calculator with the instructions below you can find the results of a gross potential income. The reason to calculate this equation is to find out what income will be realized if a property is fully occupied and all rents are collected. By taking the number of units times annual rent, you will come up with the total of your gross potential income. In less than five minutes you can determine your future income.
Ex. Let’s say you own 10 condos, 5 of these rent out at $700/month and the other 5 at $800/month, then:
1.5 units * $700/month = $3,500
2.$3500 * 12 = $42,000
3.5 units * $800/month = $4,000
4.$4000 * 12 = $48,000
5.$42,999 + $48,000 = $90,000 Annual income/GPI.
*Please note: These numbers are assuming full occupancy and all payments are accounted.
4. Vacancy and Credit Loss – Vacancy and credit loss is an estimated percentage of gross scheduled income. If we assume your property will generate $50,000 in one year of full occupancy (i.e., the gross scheduled income), allowing a 5% vacancy and credit loss, we would estimate your loss of revenue to be $2,500 revenue for that year.
Gross Scheduled Income x Rate = Vacancy and Credit Loss
$50,000 x .05 = $2,500
5. Net Operating Income – This calculation includes operating costs (management, taxes, utilities, repairs, etc.) to take into consideration. Refer to the NOI example below for details to calculate this income.
1.Determine the Gross Operating Income (GOI) of property. Gross Potential Income – Vacancy and Credit Loss = Gross Operating Income
2. Add up all operating expenses of the property. (This includes the operating costs of management, taxes, utilities, repairs, etc.)
3. Subtract the operating expenses from the Gross Operating Income and you will have the Net Operating Income.
Here is an example of one property with a gross operating income of $60,000 and operating costs of $45,000. The calculation is: $60,000 – $45,000 = $15,000 Net Operating Income.
Use these calculations to help analyze your real estate investments and determine if your cash flow is positive or negative. These numbers will also show which expenses are taking control of your money and help you determine if that property is worth your investment.
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