Multifamily Rental Property Calculator
A quick and easy way to analyze any multifamily rental property investment!
Watch this video walkthrough on how to use the calculator!
At Sage Real Estate, our mission is to help you build wealth through real estate investing. We understand that investing in multifamily rental properties is a huge and complex decision! There are a ton of metrics and factors any real estate investor needs to consider when deciding if a property is the right deal or not. Using the Sage Multifamily Rental Property Calculator, you’ll be able to quickly and easily analyze any investment property using the same metrics that seasoned investors rely on.
How to Accurately Analyze a Multifamily Investment Property
Guide to Investment Metrics and Definitions
Appreciation – This is the amount of how much a property increases in value annually. When considering an investing strategy, many investors choose between cash flow and appreciation. While most novice investors prefer cash flow, they also take appreciation for granted. In the end of the day, appreciation is really where real estate wealth is created.
The rate of appreciation depends on numerous factors such as the location of the property, inflation, and market conditions. Sign up for Investor Resources to receive market updates that include appreciation trends!
Capitalization Rate – Also known as the cap rate, this real estate investment metric is used to indicate the rate of return that a real estate investor can expect from a property. This rate will vary area by area, depending on factors such as desirability.
You may use cap rate as one of the metrics to compare relative values of different properties. You can calculate the cap rate of a property by dividing the net operating income by the property’s list price.
Cash-on-Cash Return – This calculation, unlike other metrics used to compare properties, determines the rate of cash return you’ll earn based on your initial cash investment. This is calculated by dividing the property’s net annual cash flow by the amount of your initial down payment.
Expense Rate – This is the percentage of the property’s annual income that goes towards standard operational expenses. This includes property taxes, insurance, utilities, licenses, and other fees except for mortgage expenses.
The rule of thumb is 30%. If you are managing the building yourself, it may be as low as 25%. Property management and other factors may bring this rate above 35%, but in most cases the standard is 30% to help you quickly calculate the financials.
Gross Rent Multiplier (GRM) – This is another real estate metric used by investors when analyzing an investment property. A property’s GRM functions as the ratio of its market value over its annual gross rental income. A “good” GRM depends heavily on the property type and rental market in which it’s located.
Net Operating Income (NOI) – This equals all annual property income minus the expense rate of standard operating expenses.
Price Per Square Foot – This common investment metric is often included in property listing details and can vary between cities and neighborhoods.
Price Per Door / Price Per Unit – This is one of the most popular investment metrics used by most investors because it’s simple and quick to determine. It is calculated by dividing the property’s list price by the number of rental units.
Principal Pay Down – This is simply the part of the mortgage loan that you pay each month that is applied to the loan balance instead of interest.
Return on Equity – Although rarely mentioned online, this real estate investment metric is possibly the most important number you need to know as an investor. It is the main metric that will determine how you’re building wealth in real estate. Learn more about it in this article.
Return on equity is calculated by dividing your annual return (annual cash flow + principal pay down + appreciation) by your initial investment or down payment.