Property investment calculator is a term used to define an application that provides fundamental financial analysis underpinning the purchase, ownership, management, rental and/or sale of

real estate Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more genera ...

for

profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...

. Property investment calculators are typically driven by

mathematical finance Mathematical finance, also known as quantitative finance and financial mathematics, is a field of applied mathematics, concerned with mathematical modeling of financial markets. In general, there exist two separate branches of finance that require ...

models and converted into

source code In computing, source code, or simply code, is any collection of code, with or without comments, written using a human-readable programming language, usually as plain text. The source code of a program is specially designed to facilitate the w ...

. Key concepts that drive property investment calculators include returns, cash flow, affordability of financing, investment strategy, equity and risk management.

Calculations

Here are some of the calculations that one may expect to see from a property investment calculator along with definitions. # Cash on cash return – Cash flow in year 1 divided by cash invested in the property. # Equity build up rate – Increase in equity in year 1 from mortgage principal payments divided by cash invested in the property. # Capitalization rate – Net operating income (NOI) divided by property's asset value. # Gross rent multiplier – The ratio between a rental property's gross scheduled income and its market value. # Net cash flows – The amount of cash to expect to receive after expenses. # Net present value of future cash flows – The sum of net future cash flows discounted back to the present value using the time value of money to understand what future cash flows are worth today. # Gross rental income – The total rental income one expects to receive. # Operating expenses – All expenses associated with operating the property. These can include homeowner's insurance, property taxes, and maintenance expenses to name a few. #

Net operating income In accounting and finance, earnings before interest and taxes (EBIT) is a measure of a firm's profit that includes all incomes and expenses (operating and non-operating) except interest expenses and income tax expenses. Operating income and ope ...

(NOI) – Net operating income is also known as net income and is income received after subtracting all operating expenses. This will exclude income taxes and interest. #

Depreciation In accountancy, depreciation is a term that refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the a ...

– The expense associated with the depreciation of your property. For more information on depreciation, se
IRS Publication 946
# Tax savings from depreciation – The amount of taxes saved from using depreciation as an expense against income. # Debt to assets ratio – The ratio of debt remaining on the property to the value of the property or asset. #

Internal rate of return Internal rate of return (IRR) is a method of calculating an investment’s rate of return. The term ''internal'' refers to the fact that the calculation excludes external factors, such as the risk-free rate, inflation, the cost of capital, or fi ...

– Technically speaking, it is the discount rate at which the net present value of future cash flows equals $0. In laymen terms, it is the rate of return received on investment in a given year adjusting for the time value of money.

Types

# House flipping calculator # Rental property calculator # Investment property calculator

History

In response to 2007

subprime mortgage crisis The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis. It was triggered by a large decline in US home prices after the coll ...

and preceding US property bubble, a number of residential property investment analysis tools and applications have been launched to the public by both government, commercial organisations and as part of open source projects. These analytical tools have been developed to help real estate investors to understand the risk and returns of residential property investing. These tools have included

mortgage calculator Mortgage calculators are automated tools that enable users to determine the financial implications of changes in one or more variables in a mortgage financing arrangement. Mortgage calculators are used by consumers to determine monthly repayment ...

, residential property depreciation calculators and property investment calculators. A number of web technology companies have also developed comprehensive all-in-one packages that provide financing, risk and return analysis, investment strategy and portfolio management capabilities.

References

{{Real estate Real estate investing Investment

Calculations

Types

History

See also

References