Total Debt Service = Principal Payment + Interest PaymentĪnnual Cash Flow = Net Operating Income - Total Debt Service Note: Capitalization rate may be based on the current property value instead of the purchase price. Valuation (Offer Price) = Net Operating Income / Desired Cap RateĬapitalization Rate = Net Operating Income / Purchase Price
Net Operating Income = Operating Income - Operating Expenses Summary of the Formulas UsedĮffective Rental Income = Rental Income - Vacancy and Credit Losses Even though there may be additional tax benefits such as depreciation and deduction of interest payments, these are not part of the cap rate, cash flow, or cash on cash return calculations. Note that the net cash flow and the cash on cash return are both pre-tax calculations. Enter your down payment, fees, and interest rate to calculate the initial investment and total debt service. The spreadsheet assumes the loan is a fixed rate loan. The cash-on-cash return is where you see the effect of leveraging the bank's money. The cap rate percentage is the same regardless of whether you have a loan or own the property outright. It is the net annual "cash flow" divided by your initial "cash" investment (thus "cash on cash"). The cash-on-cash return is the key metric calculated by this worksheet. The financial leverage you get from a loan is one of the main purposes of investing in rental property. (hint: the valuation does not depend on the asking price) Step 3: Enter Loan Information to Calculate Cash-on-Cash Return Read the book "The ABCs of Real Estate Investing" by Ken McElroy if you'd like to understand why I set up the spreadsheet the way I did. You will notice that in this worksheet, we didn't start off by listing the property value or asking price. The loan information is based on the actual purchase price. If it's over 10%, you are receiving excellent income compared to the value of the property.
If it's under 3%, you should ask yourself if it might be easier to invest in a CD. If you pay cash for the property or fully pay off the loan, this is the return you'd be expecting. It has to do with whether the income minus expenses provides a decent return based on the value of the property, and does not take into account leverage (money you may have borrowed). The capitalization rate is your expected rate of return on your investment, calculated as Net Operating Income divided by the Asset Value.
#Cash flow property calculator how to#
How to Use this Spreadsheet Step 1: Estimate Rental Income and Expenses Formulas are now the same as cells C50-51.
#Cash flow property calculator update#
Update - Fixed error associated with cells D50-D51 in scenario B. This one was designed for people who are still learning the basics of rental property investing for cash flow. You can find other spreadsheets that provide a more thorough investment analysis (such as 10-year cash flow projections). Some basic instructions for doing the analysis are included below, but you should also consult your team (accountant, tax advisor, property manager, legal rep, etc.) before making real estate investment decisions. The numbers included in the spreadsheet or in the screenshot above are theoretical examples only and are provided only to help show you how to enter data. Always double-check calculations because you don't want to make an important financial decision only to find out later that you had accidentally overwritten or messed up one of the formulas.įor example, if you add more rows to the operating expenses, double check the formula used to total the expenses to make sure it is summing all of the expenses. This Excel spreadsheet makes things even more simple by providing a convenient way to calculate and compare results.Įdit the cells with the light blue background. The calculations for doing a rental property valuation and cash flow analysis are not very complex.
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