An income property calculator is a great tool for keeping track of cash flow, determining your return on investment, and ensuring you make the most of your investment property potential. These calculators can tell you a lot; but there’s one big thing they can’t tell you.

How Property Calculators Work

An income property calculator takes the data you give it and returns actionable numbers about your CAP rate, return on investment, and cash flow. In order for your calculator to work properly, it needs accurate information, so be sure you have as much detail as possible close at hand, including:

  • Property value
  • Estimated property expenses (taxes, maintenance, and management fees)
  • Mortgage rate and loan term
  • Amount of your cash down payment
  • Expected monthly rent
  • Any other monthly income (parking, laundry, etc)
  • Vacancy rates

Three Questions Income Property Calculators Can Answer

1. Should I Raise Rent?

Maybe you’re on the fence about raising rents. This can be especially tricky if you have reliable tenants who are paying on time and taking care of the place. If you raise rents, you risk driving them away. Not only might a property or unit stand empty for a while (in which case, you make nothing), but you risk replacing a great tenant with a terrible one.

The property calculator can help you decide when you’ve reached the point that current rents are simply not doing what you need them to do for your investment portfolio. Then you’ll know if it’s time to raise rents, and by how much.

2. Can I Afford to Reinvest?

To reach financial independence with your properties, you need to keep reinvesting and building your portfolio. The trick is knowing when is the right time to use your cash flow and equity to take the next step.

The calculator can help you make that decision by showing you your rate of return on investment and the ratio of your net operating income to your asset values (CAP rate). In general, the higher your CAP rate, the better off you are,

3. Am I Following the Percentage Rules?

Investing in real estate can be fairly complex, but there are some generally accepted principles that make a good starting point. While you’ll want to talk to an expert about details of your personal portfolio, the income property calculator can be a fast and convenient way to make sure you’re staying generally on track.

Some rules you should be tracking include the 1% rule, which says that your monthly rental income should be no less than 1% of the property’s purchase price, after repairs. Another good rule of thumb is the 50% rule, which says that your operating expenses shouldn’t be more than about 50% of income.

One Things Income Property Calculators Can’t Tell You

These investment calculators are great, but there’s one important thing they can’t tell you. They can’t predict tomorrow.

Real estate investment is, by its very nature, a relatively long-term investment, yet the market can change quickly. A nearby shopping complex that’s thriving today could start dying next quarter. Local governments can raise property taxes without warning or even re-assess properties higher than they’re worth and rely on you to catch it and fight them on it.

Local governments can also start investing in infrastructure and lowering business tax rates, improving property values dramatically. A nearby school can have a good year and get a higher ranking, making it more desirable for parents. Anything can happen, and to get the answers to these questions, you need input from a property investment specialist.

Get the Answers You Need

When your income property calculator has told you everything it can, contact Jason Hartman to get the rest of the story. Financial independence is within reach. You just need the right answers to your investment questions.