Back in the early 2000s when people thought real estate investing was the new “get-rich-quick” thing it was because people didn’t take the time to calculate whether their real estate investment was going to be profitable.

Instead, they listened to their friends, and their friends-of-friends who told them to get an adjustable-rate mortgage because you could get in for very little money and sell it when the property shot up in value. They leveraged their primary home – and the other two houses they bought – to keep buying more. Do you know someone who was a victim of that nonsense? I do. And guess what? They rent now. They lost it all because they banked on appreciation and the market just, well, tanked.

Times have changed. And so has the thought process (we hope!). Appreciation can’t be measured by any real calculation. You can take a guess and hope for the best, but that’s no way to measure return. Real estate investments should only be measured by what you can calculate. And when looking at any real estate investment calculator keep in mind these 3 things:

1. It’s all about cash flow! It’s better to have a real grasp for the actual income and expenses with likely maintenance, management fees and vacancy periods than to over complicate things with other measurements, such as Internal Rates of Return over 10 years. A real estate investment calculator that tries to calculate appreciation or returns with only rent to purchase-price ratios isn’t going to give you a concrete number. It’s helpful, but doesn’t give you specific expense data. It’s all about cash flow!
2. Know you REAL income and expenses.This requires a detailed monthly and annual view of everything including rent, vacancies, taxes, insurance, utilities, etc. Learn about what to include in your calculations by reading the Rental Property Calculator article, which outlines what you should account for in any real estate investment calculator. The real estate investment calculator on HowManyDoors makes all of these fields completely adjustable to edit with your numbers and provides a visual to show you results in a snapshot.
3. It should automate the basics and be adjustable. To get the true facts, estimate your required return by creating an offer price after calculating your income and expenses. Let’s face it, most of the time when looking at a property you want to calculate the capitalization rate, so you’ll estimate rent from some online sources or input the rate from the lease agreement and include a consideration for a vacancy period. Our real estate investment calculator allows you to quickly enter a budget for all your monthly expenses, and even includes a field for improvement estimates, for example if you are purchasing a property that needs a little “tlc” before renting.

The key to success for any real estate investment calculator is to be as accurate as possible. Read our real world tips on getting true income and expense data. Some inputs are easy as they require little research and are more hard numbers, like property taxes or management fees, that can be sourced from local tax records or quoted by a property manager. Other figures aren’t as easy to come by, and require a little more research and discussion with various professionals. However, you can estimate some of these figures with knowledge of industry averages, combined with facts on the property in question like purchase price, size, age and location.

But we’ve made it easy for you – we took all this knowledge and created the first automated real estate investment calculator with real-time feeds of industry data! That’s right – our real estate investment calculator pulls data from various sources and combines it with an algorithm to estimate service fees like property management and repairs to provide you with a capitalization rate – the gold standard for measuring return on real estate investments.

The lesson here is that you shouldn’t listen to your friends. Appreciation can’t be calculated because you never know which way the market will turn. There’s so much information out there that allows you to make solid calculations on your real estate investment. Whether you use the real estate investment calculator on HowManyDoors or you find another one, be sure that all the data is there to give you the return you’re looking for on your real estate investment.