BiggerPockets Rental Property Analyzer
Property Income & Expenses
Property & Financing Details
Analysis Results
Understanding the BiggerPockets Rental Property Analyzer
The BiggerPockets Rental Property Analyzer is a powerful tool designed for real estate investors to estimate the potential profitability of a rental property. It goes beyond simple rent calculations to consider a comprehensive range of income sources and operating expenses, as well as initial investment costs, to provide key financial metrics.
Key Metrics Explained:
- Monthly Net Operating Income (NOI): This is the property's income after deducting all operating expenses, but before accounting for loan payments (debt service) and income taxes. It's a crucial measure of a property's ability to generate income from its operations alone.
- Annual Net Operating Income (NOI): Simply the Monthly NOI multiplied by 12.
- Monthly Cash Flow (Before Tax): This is the actual cash you expect to receive each month after all operating expenses AND the mortgage payment have been paid. It's the money that lands in your pocket.
- Cash-on-Cash Return (Annual): This metric measures the annual pre-tax cash flow relative to the total cash invested in the property. It's expressed as a percentage and helps investors compare the performance of different real estate investments based on the actual cash put into the deal. A higher percentage indicates a better return on the invested cash.
- Capitalization Rate (Cap Rate): Calculated as the Annual Net Operating Income divided by the Property Purchase Price. Cap Rate is a key metric for comparing the profitability of different properties, especially in mature markets. It represents the potential rate of return on a property if it were purchased with all cash, ignoring financing.
- Annual Return on Investment (ROI): This is a broader measure of profitability than Cash-on-Cash Return. It considers the total annual profit (cash flow + principal paydown + equity build-up from appreciation) relative to the total cash invested. For simplicity in this calculator, we often focus on cash flow and cap rate as primary indicators, but a full ROI calculation would include these other factors.
The Math Behind the Calculator:
1. Calculating Potential Gross Income (PGI):
PGI = Monthly Rent Income * 12
2. Calculating Vacancy and Credit Loss:
Vacancy Loss = PGI * (Vacancy Rate / 100)
Effective Gross Income (EGI) = PGI - Vacancy Loss
3. Calculating Total Annual Operating Expenses:
This includes property taxes, insurance, maintenance, repairs, property management fees, and other expenses.
Annual Property Taxes = Property Value * (Property Tax Rate / 100)
Annual Insurance = Property Value * (Insurance Rate / 100)
Annual Maintenance = Property Value * (Maintenance Rate / 100)
Annual Repairs = Property Value * (Repairs Rate / 100)
Monthly Collected Rent = Monthly Rent Income * (1 - (Vacancy Rate / 100))
Annual Property Management Fee = Monthly Collected Rent * (Property Management Fee / 100) * 12
Annual Other Expenses = Other Monthly Expenses * 12
Total Annual Operating Expenses = Annual Property Taxes + Annual Insurance + Annual Maintenance + Annual Repairs + Annual Property Management Fee + Annual Other Expenses
4. Calculating Net Operating Income (NOI):
Monthly NOI = (Effective Gross Income / 12) - (Total Annual Operating Expenses / 12)
Annual NOI = Effective Gross Income - Total Annual Operating Expenses
5. Calculating Mortgage Payment (Principal & Interest):
This uses the standard mortgage payment formula (Amortization Formula):
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M= Monthly Mortgage PaymentP= Principal Loan Amount (Property Value - Down Payment)i= Monthly Interest Rate (Annual Loan Interest Rate / 12 / 100)n= Total Number of Payments (Loan Term in Years * 12)
Principal Loan Amount = Property Value * (1 - (Down Payment Percentage / 100))
Loan Amount = Principal Loan Amount + Closing Costs (Note: Closing costs are often financed or paid upfront. For simplicity in some analyses, they are added to the loan principal or considered part of initial cash outlay. This calculator adds them to the loan for payment calculation but they are NOT considered part of the cash on cash return calculation as that is based on cash out of pocket.)
6. Calculating Monthly Cash Flow (Before Tax):
Monthly Cash Flow = (Effective Gross Income / 12) - (Total Annual Operating Expenses / 12) - Monthly Mortgage Payment
7. Calculating Cash Invested:
Cash Invested = (Property Value * (Down Payment Percentage / 100)) + Closing Costs + Initial Rehab/Repair Costs
8. Calculating Cash-on-Cash Return (Annual):
Cash-on-Cash Return = (Monthly Cash Flow * 12) / Cash Invested
9. Calculating Capitalization Rate (Cap Rate):
Cap Rate = (Annual NOI / Property Value) * 100
How to Use the Calculator:
1. Enter Income: Input your estimated monthly rent.
2. Estimate Expenses: Fill in realistic percentages for vacancy, property taxes, insurance, maintenance, repairs, and property management. Also, add any other recurring monthly costs.
3. Property & Financing Details: Enter the property's purchase price, your expected down payment percentage, the loan's interest rate and term, and any closing costs or initial rehab expenses.
4. Analyze: Click "Analyze Property" to see the estimated monthly and annual financial performance, including cash flow, cash-on-cash return, and cap rate.
5. Review Results: Evaluate the metrics to determine if the property meets your investment criteria. A positive cash flow and a healthy cash-on-cash return are often desirable. The cap rate helps in comparing this deal to others.
This analyzer provides a strong financial overview. Remember to always conduct thorough due diligence, including physical inspections and market research, before making any investment decisions.