Rental property return calculator
A property can show a positive operating return and at the same time require money from the owner every month. Financing, maintenance and periods without a tenant make the difference. The calculator therefore shows operations, cash flow and return on equity as separate figures.
Worked example
- Possible annual rent: 18,000.00 USD
- Owner running and maintenance costs: 3,000.00 USD
- Total cost of purchase: 300,000.00 USD
- Loan: 210,000.00 USD
- Interest in the first year: 4,500.00 USD
- Repayments in the first year: 3,000.00 USD
Operating result before financing
15,000 USD per year
Operating yield 5% · cash flow after interest and repayments 7,500 USD · return on equity 11.6667% (operating result minus interest divided by equity 90,000 USD )
Before tax. A later sale is not included.
Start with rental income and operating costs
Enter the purchase price and transaction costs. Add a realistic rent, expected vacancy and the expenses the owner pays. Maintenance should be included, even when the next major repair is some years away.
The operating return is calculated before financing. That makes it easier to look at the property as an investment. Cash flow, on the other hand, shows what is left after interest and principal payments, among other things, in the chosen model.
Guide to assessing a property
Use income you can document
A possible rent in a sales listing is an assumption that must be checked. The calculator does not decide which rent can legally be charged. Use specific information about the property and the letting.
Example of the difference between return and cash
A rental income of 120,000 and operating costs of 20,000 give 100,000 before financing. With a total investment of 2 million, the operating return is 5 percent. If 30,000 is then paid in interest and 20,000 in principal, the cash flow is 50,000 before other items.
Try a lower rent, more vacancy and higher maintenance. The result is shown before tax, unless a separately documented tax model has been chosen. Any later sale must be looked at as a separate scenario with transaction costs and remaining debt.