How to Use the Rental Property Calculator

Step 1: Enter Your Mortgage Info

Type in your mortgage amount, which is the amount you borrowed (if anything) in order to purchase the property you are renting out. Also type in the home loan term and interest rate. Bear in mind that if you are financing the purchase with a jumbo loan, the interest rate may be higher than with a typical mortgage.

Step 2: Enter Your Annual Rental Income

Type in the amount you would earn from the rental unit(s) if they were rented 100% of the year.

Step 3: Compute Your Vacancy Rate

Estimate the number of days per year the unit will be vacant, and divide by 365 for your percentage. Or use the national average rate of 7%. If you have multiple units, your formula would be: Total number of days each unit is vacant / (number of units x 365). For example, if you had three units and each one was vacant for 20 days, the math would be (3 x 20) / (3 x 365), or 60 / 1,095 = .054 That’s a vacancy rate of roughly 5%.

Step 4: Enter Expenses

In the next steps, you will type in the expected cost of your property taxes, insurance, repair costs, management fees, and other expenses. If the cost of living in the area where your property is located is high, that will likely mean high property taxes and repair costs as well.

Step 5: Examine Your Results

The calculator will quickly show you the profit (or loss) you can anticipate based on the annual income minus your expenses.

Benefits of Using a Free Rental Property Calculator

A rental property calculator can help you determine whether purchasing a rental property or renting out a property you already own could be a smart decision. You’ll learn whether you can anticipate, based on the estimates you put into the calculator, a profit (potential income!) or a loss. Of course, even if a rental property investment calculator shows that the property isn’t hugely profitable in the short term, you might still make or lose money on the property itself if it appreciates and you sell it.

You can also use a rental property calculator to help you determine how a mortgage refinance might affect your profit/loss results. To do so, simply change the interest rate in the calculator from your current rate to the rate you think you would be able to obtain with a refinance. Remember that in the first year of a refi, you’ll also have closing costs to factor in.

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What Is a Rental Property?

A rental property is any property that is rented out by its owner for the purpose of producing income. It might be as small as a bedroom used for short-term rentals or as large as a multiunit apartment building. Rental properties don’t have to be residential, of course.

Commercial buildings that house offices, shops, or restaurants can also be rental properties. Rental properties have the potential to make money in two ways: through rental income and through the appreciation of the property itself, should you eventually decide to part with the real estate.

Types of Rental Properties

Pretty much any style of building you can imagine can be a rental property. You might be renting out a single-family house, or you could own a multiunit apartment building. In between there are multifamily homes, such as duplexes (two floors of a building or a side-by-side arrangement, for example) and triplexes. A condo or townhouse can also be rented out to tenants, although if there is a homeowners association (HOA) involved, you’ll want to make sure HOA rules allow you to rent the property to a tenant.

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How to Use Rental Property Calculator Data to Your Advantage

A rental property calculator can be useful if you are deciding between multiple properties that you might want to purchase. Input the mortgage amount, mortgage rate and term, and other anticipated expenses for the first property, along with its anticipated earnings and vacancy rate. You’ll do the same for the second property and can compare the results. (Another way to compare costs is to use a mortgage calculator to see the monthly payment on each property, though to compare the potential profits, you’re better off using this free rental property calculator.)

Maybe you’ve already decided on the ideal property to purchase, but you haven’t determined the type of mortgage loan you want. Running the numbers on different mortgages in the calculator can help you determine which results in the best profit margin.

It’s faster than going through the mortgage preapproval process, though you eventually might want to get a mortgage preapproval to smooth your path to purchasing the property.

Examples of Rental Scenarios

Using a rental property calculator to run multiple scenarios can help you understand the best- and worst-case scenarios, as well as the middle ground, before you take the leap into becoming a landlord. You’ll run each scenario in the calculator and then study the results. Here’s how to do it:

Use the rental property calculator to create the rosiest financial picture of your rental business that you can imagine. Leave the mortgage amount, loan term, and interest rate the same in each scenario, but change the other numbers. Maybe you forecast the rental income at the highest level you think the property could realistically command, your vacancy rate at zero, and your expenses at the lowest level. (Think the minimal amount of repairs, no investment in a new roof or other big expense, and no property maintenance fees because you would maintain the property yourself.) The result is your maximum profit number.

In Scenario Two, you would forecast a mid-range rent, a pretty low vacancy rate of, say, 5%, and so on.

And for your least optimistic scenario, envision rents at the low end of the range in your local area, plus a high vacancy rate of 10% or 12%, and a large repairs expense (maybe that new roof is needed after all). If you can get comfortable with the profit/loss number at each of these levels and, more important, if you think you could still make the mortgage payments on this property even at the lowest level, then you’ve learned something about whether you have the financial mettle to take on a rental property.

Rental Property Tips

Many investors gravitate toward owning rental properties as a way of diversifying their portfolio beyond stocks or mutual funds and bonds. And the steady influx of cash that comes from rent looks very attractive indeed. But there are some things to consider before you go from property owner to landlord:

•  Examine your local market Before you jump into the rental market, consider the property you have and look at competitor properties’ rents to see what you might be able to charge. You might be purchasing a relatively inexpensive property in one of the best affordable places in the U.S., but if there is no demand for rental units, a bargain property won’t turn a profit. Search for rental properties in the ZIP code of your own property to examine the competition. Ask local real estate agents or landlords how supply and demand looks in the current market. If there is a glut of rentals available, your unit may sit unrented.

•  Expect unexpected expenses Some tenants pay late; others don’t pay at all. Even if you check references carefully, you may find yourself pursuing legal action against a tenant, which can be costly. Then there are unanticipated repairs to consider. If you are buying a property to rent out without budgeting for emergencies, you could find yourself caught in a cash bind.

•  Consider cash flow Cash flow is the movement of money into or out of your rental business over a set period of time. Positive cash flow means more money is coming in than going out. Negative cash flow is the opposite. Looking at annual numbers (income in, expenses out) can mask the fact that there may be times of year when you are in a cash-flow negative position on your property, such as when a rental unit is vacant between tenants, or when you have a large property tax payment due. It’s important to hold cash reserves or have another plan to cover mortgage payments and other bills during these times.

•  Ensure you’re insured A typical homeowner’s insurance policy won’t necessarily cover you if you are renting out your home or apartment to a full-time tenant. Consider a landlord insurance policy, and explore coverage for both the property itself and your liability in the event that a tenant is injured in the rental unit.

•  Get tips on taxes You will owe taxes on the rental income you derive from the property, but you may also have tax-deductible expenses associated with the property. Study the Internal Revenue Service rules on rental income carefully, and consider working with a tax advisor, especially if you are a first-time buyer.

The Takeaway

Using a free rental property calculator can help you decide if you want to become a landlord. Or if you’re already renting a property to tenants but are unsure if your efforts are making you money, the rental property calculator can help you answer that question as well. One way to maximize your profit on a rental property is to get a low interest rate on the mortgage loan you use to purchase the home. Seek out rates from multiple lenders until you hit on the relationship that’s right for you.

What Is a Rent Affordability Calculator?

A rent affordability calculator is a useful tool that can help you determine how much you can spend on rent, based on such variables as your earnings and your debt level. It can save you the trouble of breaking out pencil and paper or using your mobile phone’s calculator app. What’s more, it can be a convenient way to compare scenarios as you consider different rental options.

How to Use the Rent Affordability Calculator

Here are the moves to make to use the affordability calculator for rent.

Step 1: Enter your earnings

Your first step is to enter in your monthly gross, or pretax, earnings. This tells the calculator the income you are working with.

Step 2: Add your debt

Next, tally up the amount you pay monthly toward debt. You can use the minimum payments you typically make toward your credit card spending and student, home, personal, and other loans.

Step 3: Select your allocation level

When using the rent affordability calculator, you’ll enter in the percentage of your income you are comfortable putting toward rent. Experts advise no more than 30%. With this tool, you will select among 25%, 30%, and 35%. The highest figure may be the best choice for those living in high-priced areas.

Step 4: Find your maximum monthly rent

Once you have completed the above steps, the rent affordability calculator will show you the maximum amount to spend on rent to stick to your budget.

Benefits of Using a Rent Affordability Calculator

Using a rent affordability calculator has a number of advantages.

•  Quick calculations: It does the math for you, saving you time and energy.

•  Smarter decision-making: It can help you see how much you can afford if you allocate a higher or lower percentage of your earnings toward rent. Then you can make an informed decision about how much to spend.

•  Informed comparison shopping: When comparing available properties, you can see where they fall versus your target rent payment.

•  Better budgeting: It can help you budget effectively and know your limits in terms of how much to spend on rent every month.

How to Use Rent Affordability Calculator Data to Your Advantage

When working with the rent affordability calculator, you can use the output to your advantage in a number of ways. You can see whether your current rent could be positively or negatively impacting your budget. If your rent is too high, it may be limiting your ability to put cash into a savings account or even keep up with your monthly bills.

The calculator can also help you evaluate whether moving to a pricier home makes sense. Say you just switched jobs and will now be earning more. The affordability calculator for rent can reveal how much more you can comfortably spend while still managing your money well.

Or you might use it to see how much rent you could afford if you lowered the percentage of your paycheck spent on housing. Perhaps you want to start putting more money into savings for an emergency fund or for a wedding. The calculator can show you what, say, rent that’s 25% of your earnings looks like versus spending 35%.

Types of Rental Properties

As you think about renting a home and how much to spend, it can also be a good idea to familiarize yourself with the different types of rental properties. Just as with properties you might buy with a home loan, they come in different configurations:

•  Single-family home

•  An apartment. This could be an apartment in a large building or complex, or what’s often called a multi-family unit, such as a duplex which is one unit in a two-unit structure.

•  Sublet, in which you pay to rent a property which is leased in someone else’s name. You become their subtenant.

•  Shared home, in which you and others are essentially roommates, having both private and shared spaces in a property.

Examples of Rental Scenarios

When using the rent affordability calculator, you may consider different scenarios that can help you make informed financial decisions.

•  Scenario 1: Say you earn $10K a month, have $1K in monthly debt payments, and want to put 25% of your income toward rent as you work to pay off your student loans and start saving to buy your first home. Using the calculator, you’d learn that you can afford $1,500 per month for your rent.

•  Scenario 2: In this scenario, you might earn $10K a month, have only $300 a month in debt payments, and want to put 35% toward rent because you live in a city with a high cost of living. In this case, you can use the rent affordability calculator to see that you can go shopping for a rental of up to $3,200 a month.

Recommended: Cost of Living in the U.S.

Rent Affordability Tips

Many people are interested in keeping costs down, and the realm of rent is no exception. Try these tips to make your rent as affordable as possible.

•  Try to stick to spending no more than 30% of your income on rent, if possible. Financial experts suggest this percentage is wise for overall budget health. If, however, you live in a high-priced area, this may be challenging to achieve.

•  Look for move-in specials. Some landlords may offer discounts during slow periods of the year or when a new building opens and they are eager to fill it up. You might snag, say, a month or two of free rent.

•  Build your credit score. Many landlords review credit scores of applicants. Having a higher score could mean you are chosen over other potential renters when a well-priced property comes on the market.

•  Consider taking in a roommate or moving to a less pricey neighborhood to cut costs. You might check out lists of the best affordable places in the U.S. if you are considering a move.

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The Takeaway

Using an affordability calculator for rent can help you see how much you can spend on rent based on your income, debts, and budget parameters. It can help you compare options and manage your money better. In this way, you can take as much care when determining your rent as you would when calculating how big a mortgage you can afford when buying a home.

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