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Rental Profit Calculator – How to Analyze a Rental Property

Written by  JMB Group
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Back in 2004 I purchased my first investment property, which was a 4-plex in Austin Texas. After analyzing hundreds of properties manually I thought there has to be a faster way.  So I created a rental property calculator and have analyzed thousands of properties over the last 10 years!  Now I can analyze a property in seconds! 

Lets use the last property I purchased last month as an example.

Here is a view of the main page:

Lets start with the Property information:

This section is pretty self-explanatory. 

The property was listed for 130k and I put in an offer for 120k, which was accepted. 

The after repair value is 150k.  I put in a rough estimate of 3% for closing costs. 

My agent visited the property with a handyman and there was around 10k in work needed.

Loan details:

My lender requires 25% down for a conventional loan if you have over 4 financed properties and there is another 5% required if it’s a multi-family.  Generally your down payment would be 20% for conventional if you have less than 4 properties and it’s a SFH. 

I went with a 15-year loan with a 3.875% interest rate.

I left lender points and fees blank as I accounted for fees in the 3% purchasing costs.

Deal Details:

The total project cost is purchase price plus repairs.

The loan amount includes closing costs.

Total cash needed is the 30% down payment plus 10k in repairs

Equity is the after repair value minus total loan amount.

Income:

All units are 3-bed 2-bath 1250 square foot units built in 2005. Two of the units have large backyards and the other 2 have smaller side yards.   The larger yard units are currently leased for $725 and the smaller yard units are leased for $700.  Our local property manager who manages many units in the neighborhood stated all units are $25 under market rent.  So we have $35,400 in yearly rents.

Expenses:

All units have separate water and electric meters.

I called my insurance agent and received a quote of $2160 per year for replacement value insurance

Property management is 10%.  Generally you can find property manager rates for 1-4 units from 6%-10%.  This is on the higher side due to the mid to lower income area which requires more intensive proactive management.

Vacancy for the area is 8% which you can obtain from a local property manager.

I’m estimating 5% of rents for repairs since it’s a newer property.  I have older properties in the area that I used 10% due to their age.

The property tax rate can be obtained from your agent or county website.

And finally we add our P&I which brings our total estimated expenses to $1778 per month and $21,331 per year.

Future Assumptions:

This section is used for analysis over time, which we will cover below.  We are assuming a 3% increase for rents, property value and expenses per year.

Financials:

Finally we get to the fun stuff, the financials!  Lets see if this is a winner or looser.

Net operating income (NOI) is income minus expenses.  This does not include debt service or capital expenditures like a new roof or windows.

The next 3 items are what I pay the most attention to.

Our cash on cash return is the cash flow divided by total cash out of pocket.

Cash flow is gross monthly rent minus total monthly expenses. 

My personal investment philosophy is high cash flow properties with a minimum cash on cash return of 20% and minimum cash flow of $250 per unit which this one meets.

Analysis Over Time:

This is where our future assumptions come into play. 

As you can see our annual income goes up every year due to the estimated 3% rent increase.

The operating expenses also increase 3% yearly.

Our mortgage is paid off at year 15 and the property value increases 3% per year.

Looks like a pretty amazing investment to me!

Please email This email address is being protected from spambots. You need JavaScript enabled to view it. if you would like a free copy of our rental profit calculator!

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