Real estate & rental
Real Estate Agent Investment Return Calculator
Works investment return for a client, where the assumptions should be theirs and stated.
Result
Not investment advice. Appreciation is modelled as a steady rate, which it is not, and it usually dominates the result. Selling costs, income tax on the rental profit, depreciation recapture and capital gains treatment are all excluded and are substantial. Show a client the version with appreciation at zero as well.
Get a Free Business AuditHow the calculation works
Cash flow, principal reduction, appreciation at a stated rate and tax effects, against the cash invested, shown component by component. Presented to a client the components matter more than the total, and the appreciation assumption should be identified as an assumption rather than embedded silently.
What moves the number
- Operating assumptions behind cash flow.
- Appreciation rate assumed, which should be stated.
- Leverage, which amplifies both directions.
- Tax effects, which depend on the client's own position.
Where this one goes wrong
An agent is not the client's financial adviser, and presenting a return projection as though it were advice creates exposure that the transaction does not justify. State the assumptions, show what happens if they are wrong, and point the client to their own accountant or adviser for the tax and suitability questions. Those are not evasions; the tax effect genuinely depends on the client's income and circumstances in ways nobody else can model.
Before you quote
- State every assumption explicitly, especially appreciation.
- Show a downside case alongside the expected one.
- Refer tax and suitability questions to the client's own advisers.
Questions
About this calculator
Should an agent produce return projections?
With the assumptions stated and a downside case shown, and with tax and suitability questions referred to the client's own advisers. A projection presented as advice creates exposure the transaction does not justify.
Why does the tax effect need a professional?
Because it depends on the client's income level, how depreciation interacts with their position, and their eventual plans for the property. Nobody outside their own adviser can model that, and a general figure can be badly wrong for a specific person.
What makes a projection honest?
Naming the assumptions, particularly the appreciation rate, and showing what the result looks like if they are lower. A single confident number conceals that most of the output is a consequence of an input somebody chose.
The formula
total gain = cumulative cash flow + principal paid down + appreciation, measured against cash invested
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How to use this calculator
- Purchase price ($). Enter your own figure; the page starts at $385,000.
- Down payment (%). Enter your own figure; the page starts at 25%.
- Mortgage rate (%). Enter your own figure; the page starts at 7%.
- Monthly rent ($). Enter your own figure; the page starts at $3,200.
- Operating expenses (%). Enter your own figure; the page starts at 40%.
- Annual appreciation (%). Enter your own figure; the page starts at 3%.
The result updates as you type, so you can try a figure, see what it does to total return over the period, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Purchase price | $385,000 |
| Down payment | 25% |
| Mortgage rate | 7% |
| Monthly rent | $3,200 |
| Operating expenses | 40% |
| Annual appreciation | 3% |
| Holding period (years) | 5 |
What comes out
| Result | Value |
|---|---|
| Total return over the period main result | 81.25% |
| Annualised return | 12.63% |
| Cumulative cash flow | -$63.66 |
| Principal paid down | $16,945 |
| Appreciation | $61,321 |
| Total gain | $78,202 |
Total gain of $78,202 on 25 down, which is 81.25% over 5 years or 12.63% annualised. Appreciation contributes $61,321, and it is the least certain of the three components.
How sensitive the answer is
Holding everything else steady and changing only purchase price, this is what happens to total return over the period. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Purchase price ($) | Total return over the period |
|---|---|
| $192,500 | 200.94% |
| $288,750 | 121.14% |
| $385,000 example above | 81.25% |
| $577,500 | 41.35% |
| $770,000 | 21.40% |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Purchase price ($)
- A money amount, starting at $385,000.
- Down payment (%)
- A percentage, between 0 and 100, starting at 25%.
- Mortgage rate (%)
- A percentage, between 0 and 20, starting at 7%.
- Monthly rent ($)
- A money amount, starting at $3,200.
- Operating expenses (%)
- A percentage, between 0 and 80, starting at 40%.
- Annual appreciation (%)
- A percentage, between 0 and 15, starting at 3%.
- Holding period (years)
- A number, between 0 and 40, starting at 5.
What the results tell you
| Result | What it is |
|---|---|
| Total return over the period | The headline result. A percentage. |
| Annualised return | A percentage. |
| Cumulative cash flow | A money figure. |
| Principal paid down | A money figure. |
| Appreciation | A money figure. |
| Total gain | A money figure. |
What is not in this number
Property figures here exclude the costs that decide whether a deal works: vacancy, maintenance, management, capital expenditure and the transaction costs at both ends. A return that looks strong before those frequently does not survive them.
Keep going
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