Rental Property Profit Calculator – Quickly Determining the Profitability of a Rental Property
“What makes a good deal?” is a question I see (and get) frequently. So, to help investors with their first or next rental purchase, I’m providing my personal Rental Property Profit Calculator. This spreadsheet and the numbers included in it are provided as one way to analyze a rental property. Please consult with your property management company, title company, insurance agent, and realtor to verify all information.
Simply fill out the orange cells on the top (F1, F3, H3), and the left (B9, B10, B12, B14, B15, B16) of the spread sheet – all other numbers will calculate automatically. There are notes in each cell to help you enter the correct figure.
You’ll notice two calculations to evaluate a deal – return on equity (ROE) and return on investment (ROI). For most investors, Return on Equity (ROE) is more important that Return on Investment (ROI). I use ROI to ensure the property makes sense on the initial purchase but after the purchase I look at ROE.
I shoot for a ROI of at least 15% and notice the ROI cells on the spreadsheet turn green when ROI is at or above 15%.
But after the purchase you must look at ROE, as ROE is real money and should be treated as such! You wouldn’t let a big pile of cash sit in your house and collect dust, so why would you neglect the equity in your properties?
Example: Invest $20,000 into a house that has annual net income of $5,000 for a ROI of 25%. That’s great at first glance. When you look further you notice you have $75,000 of equity in the home which equates to a 6.7% ROE ($5,000/$75,000). Notice these are two very different numbers and remember equity is REAL MONEY.
Always ensure you are maximizing your equity.
I aim for at least 15% ROE and notice the ROE cells on the spreadsheet turn green when ROE is at or above 15%.
I use this tool to quickly and easily tell if a rental will be a profitable addition to my portfolio. Simply look at Columns E and F, if they are green then the property is a “buy” if these columns are red then you may need to re-evaluate the purchase.
I hope you find the calculator and information valuable. If it’s not exactly what you wanted, then I hope you use the information above to develop your own tool and use it to create real estate success for you and your family, friends, partners, etc.
Happy investing!
- Cam
