Investing in real estate remains one of the more profitable businesses, especially in the US market. It continues to attract many investors interested in short term or long term rental properties and looking to increase their revenue. The opportunity to explore any real estate market without even leaving your chair is already impressive, but what contributes to your success as an investor is using a tool called rental property calculator.
However, the mere idea that your investment plan will generate lucrative returns is not enough. It takes much more than coming up with your own plan. It also involves understanding how the market works and the essential tools to help you realize your investment strategy.
To help you undertand the importance of using a rental property calculator and finding the best place to buy rental property, you’ll need to stay with us a bit longer. So, keep scrolling!
The Basics of Residential Rental Property
We’ll start by covering the most important terms related to a residential rental property.
For starters, what’s the correct definition of a residential rental property?
A residential rental property is the type of property (preferably a home) purchased by the investor (you) with tenants that settled there for some time. Although it is the most common case, it’s not the only one. Other rental agreements can regulate the business relationship, as well.
We don’t need to think much about the primary purpose of the property, which is to live in it. However, it is often mixed up with a commercial rental property, which is primarily reserved for business purposes.
Nonetheless, in the definition above, we mentioned that it is a type of property—meaning that there is more than one. So, let’s get into familiarizing with the other types of residential rental properties you can come across in your search for the perfect investment property.
Types of Residential Rental Properties
Since a residential rental property is not limited to “a house,” here are a few types for which you’ll be able to calculate profitability—with the help of your rental property calculator, that is.
As you might’ve expected, single-family homes are the most common investment and the most frequently sought-after residential property by tenants.
You may hear the term “single-family detached home,” too. The US Census Bureau actually includes townhouses under the said definition—as long as they’re separated.
In short, single-family homes consist of the living space (the house) and the property around it (the land).
Real estate investors should be aware that such types of residential properties must not share utilities or heating systems with other buildings in their proximity. It is because such an arrangement would make it impossible for you to calculate the rent estimate.
Like single-family homes, condos are a prevalent choice among tenants searching for a short-term residential rental property. Condos are often part of a larger building complex.
You’ll probably hear both terms—condos and co-ops. The difference? Condo owners buy the unit and own a part of the property, while co-op owners own a share of the property.
Investors might find the following information helpful:
Co-ops tend to cost less per square foot. As such, they are popular investments in cities where living costs are higher than average.
Another typical investment for individuals with big plans (and even bigger budgets) is multi-family homes. They are complexes with units that can be rented out separately. Basically, you allow several families (tenants) to live on your property.
With a good analysis and a reliable rental property calculator, multi-family can provide high returns for the investor. In addition, it’s a smart choice for rental property investors who want to grow their investment portfolios and avoid the obligation of applying for multiple loans.
Luxury, Vacation, and Getaway Homes
We’re down to luxury, vacation, and getaway rental properties.
Luxury homes are pretty straightforward—they are usually apartments, but they can also be villas equipped with cutting-edge technology.
Consequently, the occupancy rate in such types of properties is not high.
Similarly, getaway homes are of newer construction and located in remote areas, such as mountains and even islands, far away from everyday city life. Although not as popular as single-family homes, investors still see and generate profits with getaway homes.
With luxury and getaway homes, you’ll really need to rely on your rental calculator simply because it’s not a common choice among tenants.
The last option, vacation homes, is the most popular of all three. Vacation residential properties often attract families, couples, and young people during the summer or winter holidays. The most common location for vacation rental properties would be coastal areas.
The Florida real estate market, for instance, is very suitable for such types of investments.
Related: The 10 Best Rental Markets in Florida
Does Investing Come With Rewards?
It’s time to delve into the question of whether owning rental houses pays off and discuss why potential investors should pursue them as a business opportunity.
If you’re sure about real estate investing and want to use the features of your rental property calculator wisely, here are some proven benefits:
Regular Cash Flow
At first glance, investing in real estate may seem like a risky business. However, it can provide you with regular cash flow every month.
Of course, when we say that investing can help you attain profit, we’re not referring to taking up every investment opportunity that you come across on the market. You should know how to locate a profitable one—and a rent calculator can help you get the location right.
We’re all trying our best to be diligent citizens and pay our taxes regularly. Still, when you’re a real estate owner and rent our property for residential purposes, you can count on certain benefits.
Here are the expenses that you can write off as investors:
- The mortgage interest on your loan
- Points paid on the loan
- Maintenance expenses
- Real estate taxes
- HOA dues
- Homeowner’s insurance
Now is the perfect time to mention home appreciation—but not in the way you are used to hearing about it. Your rental property calculator will help you estimate your monthly income, but it’s essential to note that you play a key role in the process.
Yes, you can “force” appreciation on your property, in addition to the standard 0.3-05% that happens on an annual basis. Basically, you can do it by making certain renovations to your property and investing in repairs and upgrades that will attract more tenants.
Not all upgrades are necessary and won’t prompt appreciation, so you should consult with a professional appraiser before starting anything.
Understanding the BRRRR Method in Real Estate Investing
There’s one thing all investors should be familiar with, and that’s the BRRRR strategy. If it’s your first time seeing these initials, you’ll be interested in what we have to say next:
The BRRRR method is an investment strategy aimed at house-flippers primarily. It’s all about investing in distressed houses, flipping them or renting them out, and then refinancing future investments. Here’s the BRRRR method explained in more detail:
Real estate investors search for distressed properties that require repairs and upgrades. As an investor, you should be aware of the lenders, as they’ll most likely require an appraisal on the house, which is more complicated with such types of properties.
As for loans, your options generally include HELOC and hard money loans. Another thing to remember when buying a distressed property is that you must calculate the After Repair Value (APV).
After your real estate calculator deemed this a profitable investment, now it’s time to make major improvements on your property. Each property’s needs are different—but it’s essential for you not to get ahead of yourself here. Focus on investments that are needed and that will increase value.
Stick to a realistic budget and timeline while you’re carrying out the rehabbing process.
A crucial step in the BRRRR method is finding tenants that will occupy the property because, otherwise, lenders will not approve refinancing.
Of course, you shouldn’t just settle for any tenants. Look for the following qualities if you don’t want your rehabbed investment property to go to waste:
- Clean credit record and timely payments
- Job/Occupation with a stable monthly income
- No criminal history
- No history of evictions
- Positive references from past landlords (if possible)
Provided that you found the right tenants and ensured a stable income, you can now talk to lenders and apply for a cash-out refinance. It’s a type of mortgage that allows you to borrow more than you owe from your last loan and keep the difference.
You should acquire quotes from at least three lenders. In such a way, you’ll get an opportunity to review your options and go with the lowest rates, which automatically means the best deal.
Also, know that not all lenders are willing to offer favorable rates, so you might need to do a bit of research first.
You know all the steps—and now you can repeat them, again and again.
With each new BRRRR investment strategy, you gain more experience and learn from your previous mistakes. And again, don’t forget to use your return on investment calculator to get the best possible deal.
Related: Does the BRRRR Strategy Really Work?
Why You Should Use a Rental Calculator
One of the critical steps of how to invest in real estate involves using the right investment tools.
With the development of technology and the continued expansion of the real estate market, it’s getting difficult for investors to keep up with current trends. Relying on such tools provides significant relief for investors searching for a lucrative location for rental property.
Here’s why you should consider using a rental property calculator:
Thorough Property Analysis
Rental calculators have taken the investment world by storm, and it’s no wonder, given that they’re more reliable than the old-school method. You now have everything you’ll need in one place, available within seconds.
Using rental calculators while searching for the ideal residential rental property will help you gain an insight into up-to-date, accurate information.
The crucial thing is that you’re able to wrap up your research much faster this way, and it’s all made possible by features such as personalized filters.
We don’t know if you’re familiar with this fact, but almost 37% of American households prefer renting out a property to buying a house. By this logic, it pays off for you, as investors, to invest in a rental property located in a stable real estate market and secure a regular passive income.
Investors, especially those at the beginning of their careers, may find it harder to decide how to finance their next investment project. Luckily, rental calculators are here to solve this dilemma, too.
For those who are unaware, using a real estate calculator helps you decide whether it’s better to invest in the property with your savings or if you should apply for a loan.
On a financial note, we believe that this is a key feature because it can save an investor from unnecessary debts and keep them on the right track.
The Benefits of Using Mashvisor’s Calculator
Everything you’ve read so far is covered by Mashvisor’s Rental Property Calculator. The Mashvisor tool was developed to allow real estate investors to locate their next investment project and, at the same time, assess its profitability and attain a profit.
Here’s what our rental property calculator can calculate for you:
As investors, your goal is to achieve a positive cash flow. In real estate, cash flow is the difference in the income you earn from your tenants during the month and expenses you must pay.
Logically, your monthly income should be higher than expenses, but it is sometimes not so apparent until an analysis is done with the help of your rental property cash flow calculator.
On that note, Mashvisor’s calculator will provide you with all the numbers and tell you what you can expect—a positive or negative cash flow.
The capitalization rate, or cap rate for short, helps investors estimate the potential return on their investment. It’s the ratio of the NOI (net operating income) divided by the property’s value.
The cap rate calculator helps investors get a clear picture of their property’s estimated returns. However, it should not be used as the only indicator of the return on investment from your property.
Cash on Cash Return
Cash on cash return is a significant long-term indicator available within our rental property calculator that provides insight into the investor’s annual return. It’s easy to calculate, and it’s one of the most critical indicators of a successful real estate investment.
It’s proven to be the most useful for long-term borrowing.
Mashvisor’s Other Features
We’ve mentioned the three major C’s of Mashvisor’s rental property calculator—but that’s not the end of what it can offer. If you sign up to use Mashvisor’s tools, you’ll enjoy the benefit of exploring and making use of some of the following features, too:
- Neighborhood Analysis
- Rental Property Analysis
- Optimal Rental Strategy
Related: The Beginner’s Guide to Rental Property Analysis
We’ve walked you through everything you could possibly need to know on the matters of residential rental property, investing, and using rental property calculators to assess their profitability. We’ve covered many essential facts, so let’s just briefly go over them and conclude today’s topic:
Investing in a residential rental property is one of the most lucrative opportunities in the US housing market.
It requires investors to gain a broad knowledge of the real estate market and keep up with current trends and data. The good news is that rental calculators will make the process more straightforward, thus increasing your success rate.
Using rental property calculators—Mashvisor’s, for example—allows investors to perform a detailed analysis of the real estate market and calculate cash on cash return, cap rate, and cash flow.
So, if you’re keen on making your investment strategy a reality, Mashvisor is here to help you put that plan into action.
Sign up for Mashvisor’s 7-day free trial, followed by a 15% discount on your quarterly (or annual) subscription.