Real Estate Investment Analysis Calculator

How to Calculate Real Estate Investment Metrics

Here are the primary formulas used to evaluate real estate investments:

1. Cash Flow: \text{Cash Flow} = \text{Rental Income} - (\text{Operating Expenses} + \text{Mortgage Payments})
2. Return on Investment (ROI): \text{ROI (\%)} = \left( \frac{\text{Annual Cash Flow}}{\text{Total Investment}} \right) \times 100
3. Cap Rate: \text{Cap Rate (\%)} = \left( \frac{\text{Net Operating Income}}{\text{Property Value}} \right) \times 100

Example:

You are considering purchasing a rental property for $300,000. Here’s the breakdown:

• Rental Income: $2,500/month
• Operating Expenses (taxes, maintenance, etc.): $700/month
• Mortgage Payments: $1,200/month
• Total Investment (down payment, closing costs, renovations): $60,000

1. Cash Flow:\text{Cash Flow} = 2500 - (700 + 1200) = 600 \, \text{USD/month or 7,200 USD/year}
2. ROI: \text{ROI (\%)} = \left( \frac{7200}{60000} \right) \times 100 = 12 \%
3. Cap Rate:
   Assuming Net Operating Income (NOI) = Rental Income – Operating Expenses: \text{NOI} = 2500 \times 12 - 700 \times 12 = 21,600 \, \text{USD/year}\text{Cap Rate (\%)} = \left( \frac{21600}{300000} \right) \times 100 = 7.2 \%

This property generates $600/month in cash flow, a 12% ROI, and a 7.2% cap rate.