How to Calculate Numbers on a Rental Property
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- เผยแพร่เมื่อ 24 ก.ย. 2013
- Discover our straight-forward and easy to use formula for calculating the numbers on a prospective rental property purchase.
Welcome to Hipster’s first how-to video! I’m going to show you how to run quick numbers on a rental property. You can use this easy and fast formula for any property you’re looking at. I'll be behind the scenes doing the calculations on my white board and calculator (yes, it really is that big!) to show you how it works. This is an actual rental property I'm using as an example, including the actual purchase price and numbers. (You have to love my handwriting!) You always want to verify the numbers you run before you buy any property (for example, with a property manager), but it helps to do your homework first. This particular house is in Indianapolis and gets $1,075 in rent. It was built in 2002. Super cute little house: three bedroom, two bath. But all we care about right now is the numbers…
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Thank you so much. Even after 7 years of posting. This video helped me make my decision on a property on 2021!! You are a blessing. Hope you’re doing well. Stay safe
awwesome! Great to hear, and congrats on your property!
Wow this was one of the easiest videos and explanation around! Love it.
So great to hear, Kevin! Really happy to help. We've got more great info on REI and turnkeys in particular on the site-- hipsterinvestments.com -- if you're interested.
@@Walina1001 how many investment properties do you own?
Truly is
Wow this was one of the easiest videos and explanation by far...i've been looking for a clear explanation on this subject... Loved it!
That's great! We're very glad we were able to help. :) If you'd like, you can get our free property calculator here as well: hipsterinvestments.com/rental-property-calculator/
This video made things so much clearer for me. I've been trying to understand REITs and rental property investment differences. Your video explained exactly what I needed to know about rental properties. Thank you so much!
So glad it helped! We've got a lot of other helpful info on the site and you can reach out to us if you ever have questions. :) hipsterinvestments.com/
So clear and concise. I’ve watched several videos on this topic. This was the best one.
Thanks so much!! If it’s helpful, we have a free rental property calculator you can use as well. You can get it here: www.hipsterinvestments.com/rental-property-calculator/
Your breakdown is awesome! Easily understood. Thanks for sharing.
Thanks! And Thank you for the feedback. Glad we can help!
Perfect timing. I'm going to look at a few places this week. Thanks.
Awesome! Let us know what you find?
This is so helpful! Thanks for making this great video.
You're welcome! Really glad to help. We've got a lot of other helpful info on the site and you can reach out to us if you ever have questions. :) hipsterinvestments.com/
Great video, very direct and to the point. Wish you had more videos. Thank you for taking the time and sharing!!
You are very welcome! We are glad to help. Is there another REI/turnkeys topic we could do a video on that would help? Always looking for ideas. Also, we have a ton of helpful content on the site you can check out and subscribe to --> hipsterinvestments.com/
Good, sound logic and clarity. Thanks!
You are very welcome!
Amen Sister! Bringing back the white board. Love it. Well done. I will be recommending your videos to my novice investors.
+kimberly secord Thank you! I'm glad you loved it and really appreciate it! If there are other videos that would be helpeful, let me know! There is a ton of info over on the site, but always looking for other videos to make as well.
+Hipster Investments Also, what kind of investors do you work with? Is there another way we can help out or anything we could work with you on to help?
Well done honestly I been watching and watching trying to find videos and free formulas online and no look
But here it is
Thank you
You’re very welcome!
Love this video. Thank you for posting it. This is the first video I've seen that shows how to do the numbers and what they mean. I'd appreciate more "How To" videos.
Thank you! We’d love to do some more how-to videos. We’ll start thinking of different ones we can do! In the meantime, do you have anything specific that we could make a video on that would be helpful for you?
Hipster Investments Thank you so much for actually helping newbie real estate investors like myself. While I am "paying myself first" in order to start investing, I do not have enough yet. Is it even possible to start with no money of my own? If so will you do a video on it please?
Blink Gone Great idea, actually! We don’t have a lot of advice on no money down situations, but Ali has partnered with someone in the past, using none of her own money, to buy properties so we’ll see if we can’t get her to talk a little bit about that. Thanks for asking!
Your welcome and thank you too!
Thank you for this video, your teaching methods are great and easy to follow.
Thanks Junior!
Awesome video. Clear, concise, and good Practical explanation of what the relevant terminology means. Please do more vids. Thanks!
Thank you, and you're welcome! We're really happy to help. Is there any particular topic you'd like to see? We do a lot more blogs and send newsletters with more info if you'd like to subscribe too: hipsterinvestments.com/subscribe
Thank you so much for such a concise and relevant video... easy and super simple... thank you!
+John P Child You're welcome! You can download a sheet to help you calculate it as well. hipsterinvestments.com/rental-property-calculator/
Awesome...thanks for explaining so simply. I actually understood.
Great, Diane, glad it helped!
THANKS a TON!! for the clear/detailed explanation.
Jevi G You're welcome! So glad that we could help!
I did your calculation and I get a 29% cap rate. I do my own property management. I also buy fixer ups, but my first duplex total purchase was 70k, I rent for 2200.00. Thats how I roll.
+Sin Stp That's awesome!
Great breakdown! Thank you 👏🏾👏🏾
thank you! And you're very welcome
It's a wonderful tool. Thanks so much for sharing, I really appreciate.
You're welcome! So glad to help. You can download it from here too: hipsterinvestments.com/rental-property-calculator/
Great information and so clear. Thank you!!
You're very welcome! Really glad to help. :)
This is a very easy to understand video. Great Job!
Glad to hear it! Thank you, and always happy to help. :)
really clear and to the point. great video thanks
You're welcome! Really happy to help. :)
so well explained! you'd make a great teacher!
Awe, shucks. :) Really glad to help! We do a lot more like this on the blog and in our newsletters. We also walk people through the process of buying, so maybe in a way myself and the team are teachers! You can check out more here if you're interested-- hipsterinvestments.com/
Thanks for breaking it down so well!!!! 😊😊
oh & I totally subscribed. You were that awesome!
+Aby Abraham Woohoo! So glad we could help, and yay for subscribing! If you haven't yet, you may want to download the Rental Property Calculator too (it's free!): hipsterinvestments.com/rental-property-calculator/
Very informative! Thanks for the info Im in my mid 20's and looking to start investing for my future with rentals
We are happy to help! You can check out more on the site and contact us here: hipsterinvestments.com/contact-buy-investment-properties/
This for very helpful....thanks!
You are very welcome!
Very well done it really helps me out
glad to hear!
Soooo helpful ! Back bone of investing !
Love that....numbers are the backbone....yes!
Thank you for such a good video. Good luck on your investing
Thank you! And good luck on your investing as well. :)
Great illustration on calculations!!
+Real First - Real Estate Crowdfunding Thanks!
Thank you so much, very informative!
+Justin Thomas You're welcome! We've got lots of other helpful stuff on the site too! hipsterinvestments.com (including the calculator)
Hello, saw your video and liked it very much for its quick and easy steps you showed, very informative and practical, keep up the good work, thanks
That's great to hear! So glad it was helpful. Thank you. :)
Thanks nice to hear from you.
Great video and love how you have simplify the process to help me understand the concept. Real word numbers can be plugged in now that I have learned the two most important things that was a mystery to me...Cap Rate and Cash on Cash ROI. Thank you. You rock!!
Really glad to help! If you want the calculator we use to make it a little easier, you can get it here: hipsterinvestments.com/rental-property-calculator/ :)
Great explanation!!!!!
thanks!
thank you for this video
You're welcome Gary!
Thanks for the helpful video.
You're welcome! Really glad to help.
excellent video, thanks a whole lot, super simple makes it super easy to understand you wouldnt think but its hard to find what expenses could be online
+oneloveonebeing That's great to hear, thank you! We're happy to help. :)
Knowing to do the numbers can help you form an informed decision when deciding on a rental property.
not 'can'... 'do'! Can't invest successfully without them.
Beginners!_This is how it is done...great illustration. I will be sharing this video with clients! Of course one must adjust to the vacancy and repair rates for their area.
Awesome Schuyler! Thanks for sharing it, and hopefully it helps your clients. And definitely, adjust any expenses necessary for your area. What market are you in?
Hipster Investments
I live and invest in Berkeley and Oakland Ca. We are experiencing serious cap rate compression....4% cap rates are all to common!
*****
Oh wow... I'm impressed you are getting 4% caps there though! That's great for the bigger CA cities. Usually positive caps at all are hard to find. Congrats!
I just saved your video and subscribed to your channel. Great job
thank you, and thanks for subscribing!
This was valuable info, thank you. You just helped me decide not to rent my condo and buy another. I didn't factor in non vacancy and it would've been negative cash flow.
Oh, excellent! Not on the negative cash flow, but on that you caught it. Congrats!
very nice video. I am 20yo and in college. After I graduate I plan to get into the buying/renting business to make side money. This video really does layout all the numbers easily for me to understand (a newbie) lol. thanks!
Thanks ***** ! We're glad that we could help! You can get more info and help from our website & blog too (specifically on hands-off REI opportunities). Keep us updated on how it all goes when you get started. :) hipsterinvestments.com/
Absolutely. More than even just annually, you make more for your money period. I try to leverage everything I can. There are debates all day long about which is better, to pay cash or finance, but I’m on the financing team all day long. Way more bang for the buck :) -Ali
great video!
Ron Thor Thank you!
Excellent thank you that was well explained :)
You’re very welcome!
Great work. 👍🙏
Thanks!
Great job on the video, when I can't understand the numbers, I just freeze up mentally. I'm going to practice this a few times. They say RE is a numbers game. This was a big help. I just bought Frank Gallinellis book but he's frying my little pea brain with all the formulas. Keep the videos coming, great stuff, great help.
thanks for the feedback! If you want some extra help with the numbers, we have a free calculator you can download- www.hipsterinvestments.com/rental-property-calculator/
Thank you!
you're welcome!
good info..thank you.
you're very welcome!
You teach very well, your video was easy to follow, I hope you make new videos.
andrew francis Thanks! Before we get another up, you can check out our website for more help and subscribe to get inside info -- hipsterinvestments.com/
andrew francis is there anything you'd like to see as far as how to videos go? We're taking suggestions! :)
Hipster Investments Could you do a video explaining the tax liabiilities associated with owning a rental property (solely income tax)? In your example would you have to pay taxes(25%) on $12900 of rental income minus $4104 of monthly rental expenses?
Kevin Dawson Not sure we can do a video detailing tax liabilities, for two reasons: 1. I’d hesitate because we aren’t accountants and I don’t want to speak to something I’m not more familiar with, but 2. (and the more exciting thing) is yes, technically you pay taxes on that income, but don’t forget with a rental property you are also writing off depreciation. With all the write-offs you can take on a rental property, depreciation being the big one, it usually works out where you end up with tax-free income. One of the biggest bonuses of rental properties!
Thanks for sharing !
You're welcome! We hope we've been helpful. :)
Best 10 minute video Ive ever watched
Awesome Travis! Glad you found it.
very useful!
Really happy to help Linda! :)
thanks hipsters!
You are very welcome! :)
Great video! Very informative! I, like you, live in LA and I'm going to start looking out of state for some investment deals. Just bought my first home in January 2013 and only have $20,000 to invest...this video made sense and was very motivating. Thank you!
you're very welcome, neighbor!
nice explanation.
Thank you! Really happy to help. Tons more stuff at hipsterinvestments.com
Great vid
Thanks! Really glad it's helpful.
thx gives a gud idea of wat to expect
+Abdulaziz Felata You're welcome! We're happy to help. :)
such an eye opener..:-) already subscribed :-)
thanks so much for subscribing! :)
Very simplistic video - thank you. In a mortgage case, what would you do with the income? Use it for another property or put it towards paying the property off?
It’s completely up to you. We don’t usually pay anything off because we are bigger fans of leverage, so would rather put it towards another
property, but you can also save the money for future repairs, etc. and
some people spend it. Totally depends on what feels most comfortable to
you and fitting for your financial situation.
very informative
Great! Super happy to help.
Badass help my friend!
Awesome! So happy to hear it was helpful. :)
Dope video!
thanks!!
This is great information, I really like how you explained it in detail.
How would this apply to a Codo with Association fees
You would just add in the monthly condo fees as one of your expenses, just like you would with HOA.
Close to where I'm from. I'm planning to buy a duplex near Bloomington here soon. Was also looking around Indy.
where are you from?
This is awesome thanks.
You're welcome! Really happy to help. :)
Great video! thank you! one question. Why wasn't the closing cost mentioned for the cash deal scenario?
We didn’t intentionally set it up as a cash deal scenario…that just happens to be how the Cap Rate calculates out. We probably should have included it actually, but the Cap Rate can be argued that it should or should not include it either way. Certainly wouldn’t hurt to throw it in there for your own calculations, and we’ll make a note of it for future ones. (we mostly deal with buyers who are financing so we don’t think quite as much about the cash buys as we probably should…)
Want to learn how to calculate numbers on a #rentalproperty?
I’ll show you how quick and easy it is in this handy video: th-cam.com/video/JL-pGPVQ1a8/w-d-xo.html
#HipsterInvestments
+TYLERWEESE85 We don’t include utilities because typically tenants pay those, not the owner. Some MFRs require owner pay some expenses, like trash or lawn, but if that’s the case we do factor those in. Because we only deal with freshly rehabbed (or redeveloped properties) we don’t expect any major CapEx for a while, so we use the steady 5% across the board so it hopefully evens it out later (5% estimate even when there are no repairs, that builds up and covers bigger ones later). We don’t factor in rent rise because that is speculative and we don’t want to be reliant on that for our numbers. If the rents rise, that’s just an extra bonus at that point.
Amazing
#Lesedi Ben yolol The numbers are so detached from reality that there's no real comparison with real world. Maybe they got a half off deal from a family member??? Or in a slum that they rent out each room for 350 for three poor ppl with no options... @DJRICKYDEEUK
Nope, none of those. But you're welcome to keep trying.
Thank you for your great helpful video.
I’m wondering if I do rehab, do I add the rehab costs in the cash in together with down payment, closing cost in the cash on cash return calculation? Do I add rehab cost to monthly expenses too?
You're very welcome! I would put it in to calculate the cash-on-cash, yes, unless you're planning to refi it back out, so then you could run it just with your ending cash in. No, I wouldn't add rehab costs into the monthly expenses. Don't quote me on all of that though... I don't rehab, so I can't say 100% positively.
Time to Buy With Knowledge.
always!
great video
+Cody Giles Thanks! Happy to help.
Great video. Shows the numbers and how they are to be analyzed. We have 14 properties and these are the formulas we use. Do you use a spreadsheet (cell fill) for quick analysis of your numbers?
Thanks,
Mike Bridges Oh my gosh! This comment must have gotten lost somewhere. I am so sorry... but yes, we do use a spreadsheet, and you can actually grab it from the site here --> hipsterinvestments.com/rental-property-calculator/
Thank you very much!
You're welcome! Really happy to help. :)
Thank you.
You're welcome. Happy to help!
hey, Great video, I studied it step by step. what do you think about your calculation compare to BP's calculator? the 50% rule and 2% rule?
ZiBo Honestly, never played with BP’s calculator so really not sure :-P As far as the 50% and 2% rules, those should only be used as guidelines to let you know whether to even pursue a property (and even that is loose). All numbers should be done with as many actuals as possible (which is pretty possible).
excellent video. What should be the min cap rate?
A positive one ;) But in more detail… hipsterinvestments.com/how-to-know-what-cap-rate-to-shoot-for-on-any-given-rental-property/
Heya, thanks for this video this is so helpful! Just one question, how did you get the 25 000$ when calculating the CoC? thanks a lot :)
$25,000 is the total amount of cash put in at the beginning. The number you use there is however much you put in-down payment + closing costs.
EXCELLENT
thanks!
excellent
thanks!
Thank you for the wonderful tutorial. I noticed that in the video you mentioned that this house is in Indy. The is the same location for my rental property. Do you still invest in the area?
Actually this property is in Atlanta. Ali doesn’t invest there now (because those prices and returns are no longer available there), but she does still work with a lot of buyers in Indy.
Hello I love your video thank you for posting this but my question is would you recommend any kind of software or an app that I can use to calculate cash on cash return and cap rate great thank you very much.
Sedat Coban Not sure of any, sorry.
thanks alot
you're very welcome!
Great video! I'm 22 and I have been saving money for sometime now to purchase my first land. To build a duplex and rent it out to earn a little extra cash and this video helped me out on what i need to calculate to see how much i should rent it out for thanks again! Just curious how many properties do you rent out at the moment? Im not planning on getting rich of of this but i find it super fascinating. Like almost a hobby.
That’s great! Keep us posted on how it goes, and glad the video helped. We own properties and work with a lot of people who are buying them, so quite a few.
Very informative, I wish there were more videos like this one out there, thanks! I have one question though, how does one account for income taxes in this math? I mean, you mentioned 1075 rent, but don't you have to pay taxes on that as part of your net income? If not, why not?
Thanks.
+NitoJeff No, because typically the write-offs on rental properties (depreciation being the biggest one) cancel out any taxes you will have to pay, and oftentimes you will actually end up getting MORE on your returns. One of the biggest perks of rental properties-mega tax benefits!
Hi. Any recommendations as far as a property manager? Great video.
drumdad124 Thanks! And managers are specific to locations, so it depends on where you needs one.
Question.
For the property expenses,
Can you explain the difference between Repairs and Property Management? What would be an example of both. Thank You.
Sure. Repairs are things that have to get fixed on or in the property-sink leaks, HVAC stuff, etc. Property Management is a set fee per month if you are using a property manager to manage (landlord) the property for you. Typically they charge 10% of the rental income as their fee. They do all the coordinating on the property, so if a repair comes up, they coordinate the handyman to fix it, etc. Repair expenses are unknown, PM expenses are known.
Ver y informative and gr8 video but do you operate in Australia? Already subscribed :D
+UMAIR KHAN Hi Umair! We currently buy out of a handful of cities in the US. We do work with turnkeys though, which isn't location dependent real estate investing.
This blog post will explain a little of this... hipsterinvestments.com/investing-in-rentals-locally-vs-from-afar-which-is-really-a-better-strategy/
Great Video - easy to follow.
I have a mortgage being paid off, need 13 more years. If I buy another propert to rent, with a loan, what do I do with the profit? Use it to pay my property or pay the rental property?
It’s completely up to you. But if one property you have is a house you live in, meaning no tenants covering the rent for you, I would use it to pay that down. The sooner a primary house is paid off, the better for paying less interest. You also don’t have to put the profits towards any of the loans, you can always just save it, spend it elsewhere, or whatever you want. But I’d definitely consider paying off the primary as soon as possible.
do you wanna shoot for around an 8% caprate with or without a mortgage? i’ve always done it with a mortgage.
Technically cap rates don’t include the mortgage, so it depends on what context you are asking. And the answer, regardless, can vary between markets and situations.
Thank you soon much!!
you're very welcome!
Do you include any allowance for evictions or lost rent from the tenants who stop paying? I’ve never seen an allowance for that in an ROI calculation video but that could crush a small investor. Thanks for the video. Any info would be helpful.
The lost rents would kind of fall under vacancies. But evictions… hopefully you’ve invested in a state that is landlord-friendly and eviction costs aren’t all that notable. Then that does just leave you with the vacancy expenses. And then of course, always remember preventative measures. Of course not all evictions can be avoided, but invest in slightly nicer properties that will attract higher-quality tenants, so at least the chances are lessened.
Good info...thank you. Question: How can you purchase a rental property without all cash and if a bank will not finance the full amount. The only think I can think of is to find an owner finance situation. You have any suggestions or is this the only option?
thanks,
Hi Robert, good question. Most properties you can actually get financing on, but it won't be for 100% of the purchase price. It's usually 20% down for SFRs or 25% for MFRs if you qualify for the mortgage.
Hey Ali excellent video! I’ve been following you on how you get every number but I’m confused on how you got a 80k loan.. or was the 80k hypothetical?
thanks so much for reaching out and asking! If the purchase price of the property is $100k... lenders require a minimum of 20% down for "investment properties", so that would be $20k in this case, meaning the amount of the loan would be $80k. Let me know if that helps.
Excellent video.... if someone doesn’t get “It” after your explanation then they should not be real estate investors.
Thanks!! We appreciate that.
Do you use a llc to make your buys?
I haven't so far. Here's why- th-cam.com/video/rACvckyxZ5E/w-d-xo.html
When calculating cash on cash return in the second part. When you added the mortgage payment. Did the mortgage payment include Principal plus Interest or interest only payment ?
Principal plus interest.
Where can I find vacancy rates by zip code? please help. Really good video thank you.
Not sure on that one, but one option you could do is call some local property managers as they would likely be able to speak to average vacancy times. Just know too though that it may even be more specific than just zip codes…it could vary neighborhood by neighborhood with different property types, etc.
Yearly
Grm: 7.75
Cap: 8.79
Noi: 8796
Ds: 5148
BTCF: 3648
Cac: 14.6
DCR: 1.70
I don't know what some of those acronyms mean!