Investment Property Calculator

How to Calculate Investment Property Metrics

1. Cash Flow Formula \text{Cash Flow} = \text{Monthly Rental Income} - (\text{Operating Expenses} + \text{Monthly Mortgage Payment})
   • Monthly Mortgage Payment:
   \text{Mortgage Payment} = \frac{\text{Loan Amount} \times \text{Monthly Interest Rate}}{1 - (1 + \text{Monthly Interest Rate})^{-\text{Total Payments}}}
2. Cap Rate Formula \text{Cap Rate (\%)} = \left( \frac{\text{Annual Net Operating Income}}{\text{Purchase Price}} \right) \times 100
   • Annual Net Operating Income:
   \text{NOI} = (\text{Monthly Rental Income} - \text{Operating Expenses}) \times 12

Example:

Let’s evaluate an investment property:

• Purchase Price: $300,000
• Down Payment: $60,000
• Loan Term: 30 years
• Interest Rate: 4% annually
• Monthly Rental Income: $2,500
• Monthly Operating Expenses: $800

Calculate the Monthly Mortgage Payment

• Loan Amount = $300,000 – $60,000 = $240,000
• Monthly Interest Rate = \frac{4}{12} = 0.333\%
• Total Payments = 30 \times 12 = 360\text{Mortgage Payment} = \frac{240,000 \times 0.00333}{1 - (1 + 0.00333)^{-360}} \approx 1,145.80

Calculate Cash Flow

\text{Cash Flow} = 2,500 - (800 + 1,145.80) = 554.20 \, \text{USD/month}

Calculate Cap Rate

\text{Annual NOI} = (2,500 - 800) \times 12 = 20,400 \text{Cap Rate} = \left( \frac{20,400}{300,000} \right) \times 100 = 6.8\%

This property provides a positive cash flow of $554.20 per month and a cap rate of 6.8%, indicating it could be a good investment.