Updates to the Real Estate Investment Property Calculator

Hello Everyone,

I refreshed and improved the Real Estate Investment Property Calculator based on feedback. There is increased focus on all major real estate metrics, which are: Cap Rate, Cash-on-Cash, and ROI. Thanks to everyone who sent over opportunities to improve and add clarity!

Here are the updates, added as of January 31, 2024

Dashboard Summary

This covers the most important metrics when analyzing a real estate investment. It’s meant to provide a snapshot, or a health check, of the target investment before you dive in deeper.

New Metrics Added: Cash-on-Cash Return and Capitalization Rate

You will notice on the dashboard and deeper into the business case that these two figures will appear. They are industry-wide metrics that are used to analyze income property investments.

Cash-on-Cash Return

As the name highlights, it’s focused on cash-only transactions. It uses cash invested upfront (i.e. down payment, renovations, fees, taxes, etc.) and the cash returned after the first year (i.e. revenue less expenses, mortgage payment, and any other cash expenditure) to calculate a return.

Capitalization Rate

Capitalization rate represents the % return over one year, assuming that the property is purchased with cash and not financed by a loan. It is calculated by dividing the property’s net operating income (i.e. Revenue – Operating Expenses) by its current market value (i.e. the purchase price).

A comprehensive article is coming out soon that will explore these added metrics in detail. It will define, calculate, and compare the use of Cash-on-Cash and Capitalization Rate alongside Return on Investment (ROI). It will outline what they mean, for what scenarios they are best suited, and then work through the numbers on a real example.

Split of Operating Cash Flow vs Interest Expense

This was split out to help with the above noted metrics. The Cap Rate calculation requires the use of the ‘Net Operating Income‘ which is equal to Revenue – Operating Cash Flow. This is meant to exclude any debt related costs such as mortgage principal and interest. So separating ‘Mortgage / Loan Interest’ into it’s own line item will make it easier to see how Cap Rate is calculated. Full details will be outlined in the upcoming article.

Added ‘Home Insurance’ Input Item

This change was to the inputs being captured for the analysis. It added a ‘Home Insurance’ field as an expense line item. This is separate from the ‘Content / Tenant Insurance’ line item that your tenant would usually pay. This change is now incorporated into all the results.

I hope these income property calculator changes help improve your analysis and provide decision support for any future real estate investments. Please note that this information is directional only, and should be reviewed with your financial planner, agent, or accountant.

Stay tuned for article that will deep dive to compare Cash-on-cash vs. Capitalization Rate vs. Return on Investment.