Rental Income Calculator Explained

Rental Income Calculator Explained

Rental Income Calculator Explained

A rental income calculator consists of nothing more than figuring out what is coming in to your rental business and what is going out. While it involves simple concepts, incorrect research, estimates or lack of preparation for the future could spell disaster for your rental business.

To figure out whether your property is going to make you a profit or not you need to first figure out what kind of revenue the property is going to generate. This is your gross income and will be the first thing in your rental income calculator. Simply take all money earned from the property and total that up. Rents, application fees, late fees and any other money made should be considered here.

You can base this number off actual historical figures if they are available or you can estimate them. By simply taking all rents and other sources of income due you come up with your gross potential income. Remember this is not necessarily what you will make; it is only your "best case scenario".

If estimating gross income, make sure to account for vacancies and uncollected rents. This will help you get your gross operating income number. These rates depend on the local market and your tenants, but let's use 5% of gross potential income for this example. Take your gross potential income and multiply it by .05 and subtract that number from your gross potential income to end up with your gross operating income.

Next in the rental income calculator is going be costs. We need to tally up our expenditures to see what is going out of your business every month. Your mortgage payments will the biggest cost. After that include taxes, insurance, advertising costs, tenant acquisition costs, repairs, maintenance, and any utilities you plan to pay. Again use historical data is possible but make sure you plan for the unexpected by putting aside 1% of the purchase price for repairs and maintenance every year.

Take your gross operating income and subtract your costs to get your net income. This is the result of your monthly cash flows, which also accounts for vacancies and uncollected rents.

As with anything, this rental income calculator simply takes all available information, combined with estimates to provide an idea of may happen with your rental business. Be prepared with extra cash or credit to deal with any unforeseen event that may affect your rental business.

You can also tweak the formula to see what changes in your operating procedures will do to your bottom line. If you're estimate is unprofitable consider putting a larger down payment on the property to lower the mortgage, raise the rent or decrease costs.

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