Rental Property Calculator
Rental property investment mostly refers to real estate investment that involves the purchase, holding, leasing, and sale. Many of the time, for better return, investors purchase cheap and inferior properties, such as foreclose properties. Then, they improve them before leasing out. Rental property investments are normally capital intensive, highly cash flow dependent, and have low liquidity. However, compared with equity market, rental property investment are normally more stable, has some tax benefit, and inflation hedged. Internal rate of return (IRR), capitalization rate, and cash flow are the most important indicators for comparing and picking different rental property investments.
Internal rate of return (IRR), also called economic rate of return (ERR), is the real annual return of the property based on the amount invested and the cash flow later. The higher the IRR, the more desirable it is to make the investment.
Capitalization rate is the ratio of net operating income (NOI) to the investment asset value. It is an indicator for quick investment property comparison.
Cash flow is the pure money flow of an investment. When purchasing rental property with loan, cash flow needs to be examined carefully. Many rental property investment failures are caused by unsustainable negative cash flow.