How To Calculate A Rental Property's Cash Flow, Value, And Return
This investment property valuation worksheet is a simplified tool meant to illustrate the concepts of calculating the cashflow, investment market value, and cash on cash return of income producing commercial or multifamily properties. It is based on a simplified methodology that has evolved in the investment property sales industry.
1. Investment Property Pro Forma Cash Flow Statement
The Pro Forma Cash Flow Statement calculates the Gross Rental Revenue and Net Operating Income used as the basis for determining an income property’s investment value.
2. Investment Property Value
The investment property value calculator applies the market Cap Rate and GRM to the property’s income and revenue stream to calculate the investments market value.
3. Investment Property Financing
The loan calculator calculates the loan payments (debt service) to give an idea of whether enough income is generated to cover the debt payments.
4. Investment Property Returns
Since investment properties can benefit from debt, the return calculator calculates the Cash On Cash return to provide an indicator of the cash return relative to the investor’s initial cash investment.
This worksheet is for educational purposes and is not an opinion of value.
Consult with a professional if you need an opinion of value for a particular property.
Rental Property Income and Cash Flow
The Pro Forma Cash Flow Statement is used to calculate the Scheduled Gross Income and Net Operating Income which are in turn used to calculate investment property values when used with the Gross Rent Multiplier and Cap Rate.
The Pro Forma Cash Flow Statement also calculates the Pre-tax Cash Flow once the monthly loan payment and annual debt service is determined.
Learn more about the Pro Forma Cash Flow Statement >>
Pro Forma Cash Flow Statement
Scheduled Rental Income: Enter at least a rental income for the investment property
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Expenses: If you don't know the details of the expenses, just enter an estimate in "Other" Expenses.
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Total Loan Payments: The annual debt service (a.k.a. Total Loan Payments) can be calculated and set from the loan calculator below once a property value has been established from the Net Income and Scheduled Gross Income calculated in this pro forma.
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Rental Property Value Calculations
Investment Property Details
Entering the property size and number of units will allow you to know the price per square foot and price per unit once the value is calculated with the Cap Rate or GRM.
Investment Property Valuation Calculator
Given the Net Operating Income and Gross Scheduled Income calculated in the Pro Forma Cash Flow Statement above, we can use the Cap Rate and GRM to calculate an indication of investment property value.
Learn more about Cap Rates and the Gross Rent Multiplier >>
Cap Rate / GRM: Cap Rates and Gross Rent Multipliers are determined by looking at comparable sales of other investment properties on the market.
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Cap Rates: Cap rates are percentage numbers that generally range below 10%. The lower the Cap Rate, the higher the price.
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GRM: Gross Rent Multipliers can range from numbers below 10 or upwards of 20. The higher the GRM, the higher the price.
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Rental Property Loan Calculations
Once we've established a property value, we can calculate the financing. The monthly loan payment will be used to calculate the Pre-tax Cash Flow generated from the income property. The down payment will determine the Cash On Cash return calcuated below.
Select which property value to use:
Loan Calculations: Once you've entered the loan parameters (Down Payment, Interest, and Amortization Period) you can calculate the amount borrowed, monthly payments, and annual debt service.
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Amortization Period: In investment property loans, the loan term can be shorter than the amortization period. The payments are calculated based on the amortization period.
Rental Property Returns
The Cash On Cash Return divides the pro forma's Pre-tax Cash Flow by the Equity Investment or down payment. It is meant to provide a notion of the rate of cash return relative to the initial cash invested.
Learn more about the Cash On Cash Return >>
Pre-tax Cash Flow: If your Pre-tax Cash Fow is negative (-), then you're NOI is not providing enough cash to cover your loan payments. Consequently, the investment will require investors to continually contribute cash to cover the cash flow needs - before taxes.
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Cash On Cash Return: You can change variables in the calculator to illustrate their impact on the Cash On Cash Return. For example, increasing Net Operating Income, or decreasing your loan payments can increase your Cash On Cash Return
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