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Mortgage calculators for investment purposes

I’ve attached an excel file of a mortgage calculator I used to buy my first house as well as my first investment property. I customized it to fit my needs and it’s quite easy to do so if necessary on your end. It’s pre-loaded with data that I will use in my example below.

The file: Mortgage calcultor for investment purposes

One word sticks out when buying an investment property: cash flows. That’s the single most important word you need to know when trying to value a property. Will it make a profit? Is it worth the investment?

To answer these questions we need to find out two things: Revenue and Expenses

Expenses
It’s quite easy to figure out expenses ahead of time. There are only a handful of factors to consider and each one can be inserted into the excel spreadsheet that was attached.

Purchase price: how much will the home cost?
Real estate taxes: public knowledge. can often be found on Zillow.com or sites like www.propertyshark.com
Interest Rate: ask your bank what rate you can get for a loan
Insurance: call your insurance company or check online for an estimate

Knowing those four attributes and using the attached calculator, you can come up with a very accurate and realistic assumption of the expenses you will incur with your target property. Enter in each of the four values to come up with your “Monthly mortgage”, the total amount of cash you will send out monthly to the bank.

Revenue
Finding out the average rents has become easier over the years thanks to sites like Craigslist. If your not familiar with Craigslist then your local paper and a Google search for your area can accurately give you average rents in your area. These averages are typically based on the size of the home or the number of units/rooms. If you are renting out a single unit, put a conservative estimate into the attached rental calculator and compare it to your expenses from above.

The idea is to bring in more cash then you send out. The mortgage calculator will help you find properties that will instantly bring you a profit.

Here is a real life example of how to use this file
I am going to randomly choose a university in Philadelphia, an Urban city not so far away from where I live in NJ. I’m choosing Philadelphia because it has a large college presence and a not-so-inflated real estate market. It’s also a renter’s market.

Step 1: Find a target market. I’m going to pick “Temple University” in Philadelphia.
Step 2: Find out average rents “per room” in this area. I’m going to search the Philadelphia section of Craigslist and type in “Temple” for a keyword. As you can see, this brings up housing near Temple University and the rates being advertised.
Step 3: I have concluded that the average rent is about $450-$500 per room. Buying a 3 bedroom house could therefore net you at least $1350-$1500 in revenue.
Step 4: I searched realtor.com for homes near Temple University and picked a random four bedroom house that appeared to be in good shape (For Philadelphia standards). I came across this one. It’s a 4BR house selling for $209,000. My conservative guess is that I can get this for $200,000.
Step 5: Put figures into calculator.

Expenses:
Purchase price: $200,000
Down payment: 10% ($20,000)
Interest rate: 6.25% (the highest I think I would have to pay)
Insurance: I entered in $600 for the year, which is an educated guess on my end

Revenue:
I put in $475 for all 4 bedrooms

Total Expenses: $1,324/mo
Total Revnue: $1,900/mo

Total profit: $575/mo

This is the mentality I have when I am considering an investment. What are my expenses, and what can I expect my revenues to be. It took me ten minutes to scour free internet resources to find a property that can net you a $575 profit instantly with only 10% down. If you change the formulas and put 0% down (which isn’t generally allowed, but let’s pretend) you would still get $450 a month in profits.

Questions about this? Want to apply it to your local renter’s market? Let me know!