[Calc Review] Help me analyze this deal

Gilbert, Arizona
Real Estate Deal Analysis & Advice
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[Calc Review] Help me analyze this deal

Joshua WoodPro Member
Member since 2026 · 2 posts · 0 votes

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*This link comes directly from our calculators, based on information input by the member who posted.

I'm new to this and used the Rental Property Calculator to analyze a potential deal. I am having a hard time understanding where they are getting the 5 yr annualized return number from. I have Brandon's book and it seems pretty straightforward there. Take the total cash flow over the 5 years + equity (minus downpayment) and divide by the total investment to get the TOTAL Return, divide by 5 to get the annualized return. 


So on this deal: cash flow is 1524, 1914, 2312, 2718, 3132 (I assume this increase is from 2% annual rent increase?) for a total of 11,600. After 5 years equity is 172k minus the 120k down for a total of 52,000. So total return is 63,600. Divided by total investment of 132,000 (120 down, 10 closing cost, 2 repairs) equals 48.2%. Divide that by 5 for 9.63% 5 year annualized return. But the Rental Property Calculator shows only 3.71%. I don't understand where I'm going wrong, or what I'm not taking into account. Any help would be appreciated. Thanks!

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  • James Johnson
    Real Estate Consultant · San Diego, CA · Member since 2026 · 11 posts · 5 votes
    5mo

    Hey Joshua! Great question — this trips up a lot of new investors.

    The 5-year annualized return is calculated like this:

    Add up your total cash flow over 5 years

    Add your equity gained (appreciation + principal paydown)

    Subtract your initial down payment

    Divide that total by your initial investment

    Divide by 5 to get the annual average

    So if you invested $50k down and made $30k cash flow + $40k equity over 5 years = $70k total return. Divide by $50k = 140% total. Divide by 5 = 28% annualized return.

    The key thing most people miss is including ALL forms of return — cash flow, equity buildup, AND appreciation.

    Hope that helps! Feel free to tag me if you have more deal analysis questions — happy to help. 🙌

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  • Joshua WoodPro Member
    OP
    Member since 2026 · 2 posts · 0 votes
    5mo

    James,

    Thanks for your reply. I understand the concept, but the rental property calculator on the BP website isn't giving me the same number. But I think I figured it out. It is calculating as if you sold the property at the end of 5 years, and using a 7% figure for sales expenses. So that's why it's showing a lower number.

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  • James Johnson
    Real Estate Consultant · San Diego, CA · Member since 2026 · 11 posts · 5 votes
    5mo

    That's exactly right Joshua — you nailed it!

    The BP calculator assumes a sale at end of year 5 and factors in the selling costs (they use 7%) which reduces the annualized return. It's a more conservative and realistic calculation than the simple cash flow version in Brandon's book.

    Both numbers are useful — just measuring different things:

    📊 Simple annualized return = cash flow + equity only

    📊 BP calculator return = includes projected sale proceeds minus selling costs

    The BP version is actually more accurate for total return because it accounts for what you'd actually walk away with if you sold.

    Great catch figuring that out — that kind of critical thinking will serve you well as an investor. Most people just accept the number without understanding where it comes from.

    Keep asking questions — you're on the right track! 💪

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