Calculators
Cap Rate
When to use this calculator: When you need a way to compare the returns on different investment properties.
( Net Operating Income / Total Cost ) * 100
= {{ ( net_operating_income / total_cost ) * 100 | checkInt }}
Cap Rate does not include debt servicing costs. It can be calculated using different definitions of cost and NOI. It's best used when derived using actual income and expense numbers from the previous year. When calculating, beware of pro forma numbers.
Cash-on-Cash Return
When to use this calculator: To evaluate the success of an investment after its first year.
( Monthly Rent - Annual Debt Service ) / Cash in Property * 100
= {{ ( net_operating_income - annual_debt_service ) * 100 / cash_in_property | checkInt }}%
This calculation only provides a return value for one year.
Debt Service Coverage Ratio (DSCR)
When to use this calculator: To evaluate the viability of an investment from a lending perspective.
( Net Operating Income / Annual Debt Service )
= {{ ( net_operating_income / annual_debt_service ) | checkInt }}
Banks use debt to service coverage ratios to predict whether a borrower is likely to repay a loan. This calculation compares an investment’s income to the amount of the loan payment (interest and principal). Most bank lenders want debt to service coverage ratios to be at least 1.2.
Gross Rent
When to use this calculator: When looking for a quick sign a potential commercial deal (multifamily or otherwise) is worth considering.
( Sale Price / Annual Rents )
= {{ ( sale_price / annual_rents ) | checkInt }}
The value yielded is your Gross Rent Multiplier. This calculations does not take operating expenses into account. It may be calculated using sales price or total cost (including rehab and acquisition).
Gross Yield
When to use this calculator: In context with institutional investors. Gross yield uses the same values as rent-to-cost.
( Annual Rent / Total Cost ) * 100
= {{ ( annual_rent / total_cost ) * 100 | checkInt }}%
Internal Rate of Return (IRR)
When to use this calculator: To put your ROI in perspective with your initial outlay of money or compare investment opportunities in different asset classes.
IRR is defined as “the discount rate that makes an investment’s net present value equal to zero.” IRR accounts for when you spend and receive cash. For most investors, it is better to receive cash sooner rather than later because then you can reinvest it. You will need an IRR calculator (my favorite is the IRR function available in Excel) to derive it.
=
IRR may also be referred to as “economic rate of return” or “discounted cash flow rate of return.” It omits external factors like cost of capital and inflation. In most cases, the higher a project’s internal rate of return, the more desirable it is.
Rent-to-Cost
When to use this calculator: If you need to quickly determine if a potential rental is worth evaluating further.
( Monthly Rent / Total Cost ) * 100
= {{ ( monthly_rent / total_cost ) * 100 | checkInt }}%
What you need to know: (1) Cheaper properties have higher rent-to-cost Use this to compare properties, (2) Use this to compare properties, not to make a final decision, (3) Buy-and-hold investors should look for a value greater than 1 percent.
Return on Investment (ROI)
When to use this calculator: To get a “whole picture” of a future investment or a completed investment.
( Gain on Investment / Cost of Investment ) * 100
= {{ ( gain_on_investment / cost_of_investment ) * 100 | checkInt }}%
Use ROI to calculate annualized returns by dividing ROI by the number of years you have owned the property.
The 50% Rule
When to use this calculator: When you need a fast estimate for operating expenses.
Gross Rents * 0.5
= ${{ (gross_rents * 0.5) | checkInt }}
The value yielded is the Approximate Annual Operating Expense. This calculation is usually used with apartments. It can be applied using real numbers or approximations, and it may be inserted into cap ate and debt service coverage rate estimates.
The 70% Rule
When to use this calculator: To determine the strike price most optimal for solid profits on a potential investment.
( 0.7 * After Repair Value ) - Rehab
= ${{ ( 0.7 * after_repair_value ) - rehab | checkInt }}
The value yielded is the strike price. This calculation is usually used for flips. The best ARV values are derived using comparable costs from comparable properties. Finalize your strike price after a detailed analysis that includes carrying costs.