# Investment Property Calculator

## How do I know if this is a good property?

Good question! The answer is **“Crunch the numbers first!” **

**Use an investment property calculator.**

I hope you’re not basing your opinion on the property’s “looks” or whether you’d want to live in it yourself.

By now you’d probably realise I’m a lot more interested in what the numbers say than how pretty it looks. Now, whilst it’s true that when I’ve bought something for me to live in I want to “love”, when I’ve bought any investment property in the last 10 years there only one question I ask myself.

**Does buying this property help me to reach my goal?**

For me this is a simple Yes or No question. Does it get a tick?

**How can you answer that question unless you have your own goal in sight.**

I personally have a goal right now to grow my cashflow positive real estate portfolio. So for me it’s now easy. Before I even look at a picture or an address (well perhaps there’s streets and towns I’ll filter out!) I’ll want to know 2 things!

**What’s the asking price?**

** What is the rental ?**

To me these are also going to be questions that quickly help me answer the question – **Is this a good property?**

*In fact you should write out a goal for the numbers you want your property to return before you even start looking.*

For example, when I was in New Zealand with the team from Results Mentoring looking for cashflow positive real estate I set myself a goal to find properties under $140k that were returning a rental of over $220 per week. This was a simple filter to help me narrow my focus.I knew from my past experience at looking at the numbers that a property fitting this criteria would have great chance of returning a positive yield after all expenses. In other words it would be **cashflow positive property!**

## Here’s the actual numbers from my first NZ purchase

### Gross Yield with the Investment Property Calculator

The **$117k** was the actual purchase price ** (I started by offering $115k!)**. The

**$220**per week was the expected rental as quoted by the letting department from the selling agent and also verified by a second agency (one that I had already chosen to manage my property!) The

**gross yield**of

**9.8%**gives a heads up that there’s a good chance the numbers will stack up in my favour!

### Profit / Loss Caclulation with the Investment Property Calculator

Now, before we get too exited about our possible cashflow there are fixed expenses that we need to consider. These will all vary from location to location but he type of outgoings should be very similar for any residential rental property.

In my case the biggest recurring expenses to consider were:

** Municpal Rates**

** Building and Landlord Insurance**

**Rental Agency Commission**

**Regular Maintenance**

These things could be added to my investment property calculator to validate whether I would achieve my basic goal of income >> expenses.

Here’s an example of the actual numbers I used and the output of the investment property calculator for my first purchase in New Zealand in early 2012.

The numbers I input were based on a reasonable estimate of the expected costs. Rates and agency fees were pretty easy to obtain. Interest payments are computed based on your numbers. Insurance simply needed a basic quote. Maintenance was a pure estimate at this stage of the process, but the general “condition” of the property could be ascertained by a basic visual inspection.

Here my numbers are encouraging. I should be able to return a profit based on initial assumptions.

### Cashflow Position with the Investment Property Calculator

But we need to look a little deeper into the numbers. So far we are only looking at our expenses, but there is likely to be additional cashflow outgoing if we have a simple P&I bank loan. In my case I had decided to set-up a long term P&I loan rather than interest only so I wouldn’t have to worry about finance options in 3-5 years time. So here’s what my actual cashflow might look like.

So if I opt to have a 25 year P&I loan I will need to pay ** principal** as well as interest. This is not an expense per se as we are adding to our equity, however, we do need to excess cash to the value of

**$238**to continue to fund the property. If I’m comfortable with the deal I will continue but I must be aware and be

**willing to choose to fund thus shortfall!**### Cash on Cash Return with the Investment Property Calculator

Another factor I want to consider when making my investment decision is what is my rate of return. In this case I am really putting in a little over $25k of my own cash into the deal (assuming an 80% bank loan). With good management I can expect to make an actual return on the cash I put into the deal that beats the money I can get on deposit at the bank! If I was to use an interest only loan I would get a better than bank interest return on this deal!

### Projecting forward Cashflow using the Investment Property Calculator

So how long will I have to fund my investment before the cash starts flowing towards me? In the investment property calculator you can make an allowance for expected increases for rental and property expenses. As the rental will be greater than the expenses then your net income will increase over time due to cost of living increases. Be conservative in your estimates. CPI numbers ought to be readily available. Whilst this is only a projection it will certainly help you to get a better understanding of the product what you’re investing in. I fully expect that after 5-7 years all my properties will have increased their rental and be throwing off cash for me to re-invest.

And so in seeing a predicted profit on the basic numbers and expected positive cashflow after 2 years I have confirmation that there is a strong chance that ** if managed well** this property can expect to return more than it costs. This is certainly not the end of my due diligence but simply the first pass on an extensive filtering system to ensure I stack the odds in my favour when making an investment of this size.

The * investment property calculator* is a simple but necessary tool to help my evaluate the property and answer the initial question?

**Is this a good property?**

I also use the calculator to help me negotiate my offer when dealing with the selling agent. I can say with confidence that if I offer any more money I would be better off leaving my cash in the bank and I’m not prepared to do that!

Oh, and by the way. I bought that property and after bedding down in the first year, doing some repairs and finding a tenant it now does return more than it costs each year. So Cashflow positive real estate here we come.

In my next article I’ll show you how I used the investment property calculator to *save in excess of $20,000 from my first NZ property.*

Until next time,

**Get your FREE Investment Property Calculator to download right NOW!**

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- My tips and tools I use for
*every single investment purchase* - My special clause that allows me to write multiple offers if required
*without worrying* - My
**due diligence checklist**I use with every purchase! **My special****Home Selling Success Strategies**

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