How to Use BiggerPockets Calculators: The Rental Property Calculator
Welcome to your first day of not manually analyzing real estate investments!
In case you’ve been living under a rock, BiggerPockets has a whole slew of digital tools to help real estate investors like you crunch the numbers and analyze the financial viability of real estate opportunities.
They have calculators for any of these investment types:
- - Rental Properties
- - BRRRR investments
- - Mortgage payments
- - Fix-and-flip projects
- - Rehab estimator tool
- - 70% Rule tool
- - Wholesaling real estate
- - Airbnb analyzer
You might get overwhelmed with them, so we’ve started this “How to Use BiggerPockets Calculators” series to walk you through the exact steps of using them. We’ll use real-life examples, too, so you can fully visualize how these calculators work.
For this installment, we’ll focus on the BiggerPockets Rental Property Calculator. This tool is ideal for investors looking to purchase a rental property for cash flow generation.
BiggerPockets Rental Property Calculator
According to BiggerPockets, the Rental Property Calculator assists you in:
- - Determining the profitability of a single-family, multi-family, or commercial property
- - Analyzing the cash flow, ROI, and other crucial monetary factors
- - Creating reports to show lenders, patterns, or investors (only for Pro Members)
Since we'll be focusing on the free version of this calculator, we'll only be able to achieve the first two things. After that, each account can generate five reports for free—providing significant help when choosing between some properties you have in mind.
As we go through the steps, we'll use this property currently listed on Zillow as an example:Source: Zillow listing as of September 2021
1. Add Your Property Information
The first step is adding the street address, city, state, zip code, plus the number of bedrooms, bathrooms, property size, building year, and additional descriptors of the home you're analyzing. Only the street address is required, but it's best to put the rest of the details in as well.
Here’s a sample based on the listing we’ve chosen:Source: BiggerPockets
Once you input the street address, BiggerPockets can automatically input the city and state for you. After that, you'll have to enter the zip code, add some property details, and you're ready for the next step.
2. Put Your Purchase Details
Next, we’ll put the purchase price and closing costs (can input individual closing costs). You’ll also need to indicate if you’ll be rehabbing the property or not. Additionally, you can add the annual property value growth for the calculator to consider appreciation in its findings.
Your answers should look like this:Source: BiggerPockets
*Note: Remember that the closing cost should include all the fees associated with the transaction.
The calculator allows you to input a single number (cumulative of all the costs) or expand the section to add costs by category. If you're not sure what your costs are, use the standard 1.5% of the purchase price, to begin with. Keep in mind that this does not consider the points changed by your lender yet.
Since the property we've chosen already looks pretty finished and in good condition, we won't be rehabilitating the property anymore. So, don't check the box if you won't rehab the home.
For property growth, we used the average annual appreciation rate of 5.77%, seeing that Detroit properties have appreciated 75.3% in the last decade. This number represents the increase of property values in the city due to inflation and market dynamics and will help estimate the appreciation growth for the next 30 years.
3. Specify Your Loan
Now, if you’re not paying in cash, the calculator needs you to input the details of your loan—whether you borrowed from a bank, credit union, or another lender. Indicate the percentage of your down payment, interest rate, points charged, and loan term in years.
We’ve used the standard 30-year fixed-rate loan at a 3.03% interest rate, and decided on two loan points:Source: BiggerPockets
We went with two loan points to lower the monthly mortgage payments and save more money. At two points, the cost per point is $4,000 with an annual percentage rate (APR) of 4%. The monthly payment is around $955, where we’ll save $58 each month. After 68 months, we’ll break even with a total payment savings of $21,074.
In contrast, we’ll save $10,600 at one point and $0 if there are no points.
4. Enter Your Rental Income
Since this is a calculator for rental properties, you’ll need to put the gross monthly income you expect to earn from the home. Similar to the other step, you can either input a cumulative figure or split it into multiple income breakdowns. The latter is usually for multi-family properties with several units or property with unique sources of income.
Using the average rent for a two-bedroom unit in the City of Detroit and its corresponding rent amount growth, here’s what the answers will look like:Source: BiggerPockets
It's optional, but you can enter the annual income growth of the area you're investing in. This number is the increase of rent amounts in the area—driven by inflation and the economic dynamics of the real estate market. It helps you forecast your income soon.
Impressively, the City of Detroit increased rent amounts by 13.2% recently, the 10th highest increase in the country. More realistically, the YOY increase for Detroit’s average rent grew by 7% from August 2020 to 2021, with an ongoing chart from RentCafe showing promise for the next 30 years.
5. Estimate Your Expenses
We’re down to our last step! You’ll now enter the property taxes and insurance costs. Taxes can increase dramatically after your purchase. Additionally, it’ll help if you can estimate the percentage of your gross monthly income for maintenance, vacancy, capital expenditures, and more for the particular home.
Here’s an example:
Not sure where to look for property tax information? It’s public data, so you can find them on your County Assessor's website. Alternatively, use SmartAsset’s Property Tax Calculator for area-specific estimates.
To get your property insurance, you can ask for an estimate from a local insurance agent or use The Zebra’s insurance calculator to find quotes from top companies.
If you want a more accurate calculation, you can also add the annual expenses growth (due to inflation) and sales expenses (how much it'll cost to sell the property).
6. Generate an Analysis
The hard part is over! Tap on the final button and have the calculator crunch the numbers. It’ll only take a few minutes before the calculator shows you the following results:
Monthly Cash Flow
We can see that the property in the City of Detroit will generate positive monthly cash flow. Its cash-on-cash return (CoC ROI) is also at an impressive 17.86%.
Income, Expenses, and Loan Details
At a rental income of $821 and expenses of $631, we’ll enjoy a margin of $190. Of course, this doesn’t include the service of a property management company—it only considers the mortgage, taxes, insurance, and variable expenses.
Lastly, we can see a detailed breakdown of the potential returns and forecasted increase in property value, equity gains, and estimated loan balance. Both property value and appreciation show tremendous growth, indicating that the property in the City of Detroit is a good investment opportunity.Source: BiggerPockets
Don’t forget that you can still go back and change any of your answers in the sections. For example, if you realize that you can charge higher rent, go ahead and change the amount. Afterward, tap the “Update Analysis” button for a recalculation.
Keep in mind, however, that each reanalysis you generate counts as one report—and you only have five free reports before BiggerPockets will ask you to purchase. Make them count!
With real estate analysis automation like this, you won’t have to manually calculate to see if an opportunity is good. Instead, get your numbers ready and plug them into BiggerPockets' Rental Property Calculator—it'll do the heavy lifting for you.
How’s your experience using BiggerPockets calculators? Any other hot tips for newbie investors?