Real estate & rental
Real Estate Agent Rental ROI Calculator
Works rental return for a client, where the omitted expenses are what cause the disappointment.
Result
Simple payback, with no discounting and no financing cost. For anything large or long, money now is worth more than money later and a lender will want interest, both of which make the real return lower than this.
Get a Free Business AuditHow the calculation works
Rental income less vacancy, operating expenses, a capital reserve and debt service, as a return on the cash invested. The expenses included decide the result, and a projection missing vacancy, management or reserves can show a positive return on a property that will not produce one.
What moves the number
- Vacancy allowance.
- Management, whether paid or self-performed.
- Capital reserve by component.
- Debt service at the rate actually available.
Where this one goes wrong
The three omissions that make a rental look better than it is are vacancy, management and reserves, and a projection that includes all three is the one a client will not come back about in two years. Include them even when the client intends to self-manage, because their time has a cost and their circumstances can change. Any projection should also be presented as arithmetic on stated assumptions rather than as investment advice.
Before you quote
- Include vacancy, management and reserves without exception.
- Use the financing actually available to the client.
- Present it as arithmetic on assumptions, not as advice.
Questions
About this calculator
What makes rental projections too optimistic?
Three omissions: vacancy, management and capital reserves. Including all three is what produces a projection the client will not return about in two years, and leaving any out shifts the result meaningfully.
Should management be included if the client self-manages?
Yes, because their time has a cost and their circumstances can change. A property that only works when the owner manages it for free is not performing as well as it appears, and a future buyer would price the management in.
Is this investment advice?
No, and it should be presented as arithmetic on stated assumptions. Suitability, risk tolerance and tax position are questions for the client's own advisers, and an agent presenting a projection as advice takes on exposure the transaction does not warrant.
The formula
payback = cost / (monthly gain - monthly running cost)
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How to use this calculator
- Up-front cost ($). Enter your own figure; the page starts at $12,000.
- Extra gross profit per month ($). Enter your own figure; the page starts at $1,400.
- Extra running cost per month ($). Enter your own figure; the page starts at $220.
- Period to judge it over. Enter your own figure; the page starts at 36.
The result updates as you type, so you can try a figure, see what it does to payback 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 |
|---|---|
| Up-front cost | $12,000 |
| Extra gross profit per month | $1,400 |
| Extra running cost per month | $220 |
| Period to judge it over | 36 |
What comes out
| Result | Value |
|---|---|
| Payback period main result | 10.2 |
| Net gain per month | $1,180 |
| Net return over the period | $30,480 |
| Return on investment | 254% |
It pays for itself in 10.2 months and returns $30,480 over 36 months, a 254% return.
How sensitive the answer is
Holding everything else steady and changing only up-front cost, this is what happens to payback period. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Up-front cost ($) | Payback period |
|---|---|
| $6,000 | 5.1 |
| $9,000 | 7.6 |
| $12,000 example above | 10.2 |
| $18,000 | 15.3 |
| $24,000 | 20.3 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Up-front cost ($)
- A money amount, starting at $12,000.
- Extra gross profit per month ($)
- A money amount, starting at $1,400.
- Extra running cost per month ($)
- A money amount, starting at $220.
- Period to judge it over
- A number, between 0 and 240, starting at 36.
What the results tell you
| Result | What it is |
|---|---|
| Payback period | The headline result. A decimal figure. |
| Net gain per month | A money figure. |
| Net return over the period | A money figure. |
| Return on investment | A percentage. |
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.
Estimating is the easy part
The jobs you never hear about cost more than the ones you mis-measure. BDEVY builds the marketing, systems and automation that bring them in.