Investment Property Calculator

Many real estate companies include an investment property calculator on their website. This is a tool that can provide you with a rough estimation of how much would a private investment property cost.

How Does It Work?

The investment property calculator uses an algorithm to calculate the approximate value of your investment. It combines factors such as rent, cash operating revenue, cash operating expenses, the amount of taxes in order to measure income changes that result from owning a private investment property.

However, you should know that an investment property calculator is nothing but a rough estimation of how much an investment property would cost and you shouldn't take it for accurate real financial advice. Before you make an investment it is best to consult a financial adviser.

Assumptions

An investment property calculator generally makes a series of general assumptions to simplify the algorithm. Such assumptions include approximating your cash operating expenses to be the same for all the months of the year. The building allowance also has an approximated value and the depreciation allowance is not taken into account.

Explanation of Terms

Monthly Rental Income – The monthly rental income is an investment property calculator term that represents the revenue that you make from rented properties each month.

Monthly Loan Repayment – The monthly loan repayment represents the total amount of money that you spend on repaying loans every month.

Monthly Cash Operating Expenses – The monthly cash operating expenses are the amount of money that you will have pay each month on taxes associated with maintaining the property.

Cash Flow – The cash flow is another investment property calculator term representing the difference between revenues and expenses (e.g. rental revenues less the loan repayments and cash operating expenses). It can be a positive number, measuring the amount of money that you would earn, or a negative number, representing the amount of money you would have to pay.

Annual Building Allowance – The annual building allowance represents the tax deduction you can make from the investment property. It varies upon the year when the property was built.

Annual Tax Profit/Loss on Property – This investment property calculator factor combines the cash flow that the property will generate with tax deductions to measure the profit or loss.

Change in Tax Paid – This investment property calculator factor measures the change in the income tax that the investor pays after owning the property, in comparison to what they would pay if they didn't own it. If it's a positive number, it means the investor will pay more tax, while if it's negative, it means he/she will pay less.

After Tax Profit/Loss on Investment – This factor represents the difference between the cash flow associated with the investment and the tax effect resulted from owning the property. It is aimed to measure the net effect of the private investment. A positive number means you will make profit, while a negative one means you will probably lose more money than you receive.

Although the investment property calculator is just a rough estimation of the effects of a real estate investment on your income, you can use it to get a solid idea on whether it's worth looking at a private investment or not.

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