Author Topic: What do you think of this Rental Investment Calculator? Is it accurate?  (Read 3757 times)

andysandp

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I'm looking for a spreadsheet or calculator that can give me the total estimate return on RE Investments after 30 years.  I found this one online and I think it's pretty good.  http://www.calculator.net/rental-property-calculator.html

Do you think it's accurate?

I tested it using the ideal 24% rental yield rule for Rentals, and 50% rule for Expenses.  I found the total return is still not as good as the return from an S and P Index Fund

For Example: 

Pay cash for $100,000 property,
Rent- $24,000 a year
All Expenses- $12,000 a year. (50% of rent rule)
Rent after all Expenses- $12,000 a year.

Let's assume 3% Appreciation each year for Rent, Expenses, and Sale price, for 30 years.

After 30 years I will have $813,631.  I didn't include Taxes on Rents, or Commission on Sales, to keep it simple.

If I put $100,000 into S and P 500 Index, I would have $1,744,940 after 30 years! (Assuming I get 10% compounded each year) If I assume 8% compounded, that would still give me $1,006,265.

$1,744,940 is way higher then $813,631!

Did I calculate something wrong?

Any thoughts?
« Last Edit: February 05, 2017, 07:52:15 AM by andysandp »

Murse

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #1 on: February 04, 2017, 12:46:38 PM »
I didn't look at the calculator but leverage makes a huge difference in RE. Also, if you are buying cash you often times can get huge discounts which this calculator has no way to take into account.

Real estate is far more predictable then the s&p and also has huge tax write off's.

I personally am doing both. I am maxing my Roth, maxing my 457, then with my leftovers investing in RE instead of a brokerage. Both have strengths and weaknesses.

andysandp

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #2 on: February 04, 2017, 02:59:13 PM »
I didn't include tax write offs, but I don't think it would have made much difference.  The S and P giving $1,744,90 is way more then Real Estate giving $813,631.

OK let's try leverage.

Here is an example of leverage:

Buying $100,000 RE
Downpayment- $25,000
Rent after ALL Expenses/repair funds- $6,000 a year
Appreciation - 3% a year on Rents, Expenses, and Home value
Interest rate- 4.5%

After 30 years you would have $391,374
After 30 years, S and P, assuming 10% compounded, would give you $436,235.

Even with leveraging, S and P comes out ahead.

Is the Calculator wrong?  Any thoughts?
« Last Edit: February 05, 2017, 07:54:21 AM by andysandp »

Murse

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #3 on: February 04, 2017, 09:31:51 PM »
You need to spell out exactly what you are putting in each field so someone else can try to replicate it.

andysandp

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #4 on: February 05, 2017, 05:57:42 AM »
Ok let's do a new one.  I think these numbers are pretty realistic but the final return is still not as good as S and P.

Purchase Price- $100,000
Down Payment- 25%
Interest Rate- 4%
Loan Term- 30 Years
Other one time cost- $2000

Monthly Rent- $1000
Vacancy Rate-5%
Management Fee- 10%

Property Tax- $1200
Insurance- $800
HOA Fee- $2000
Maintenance- $1000

Value Appreciation- 3% per year
Holding Length- 30 years
Sell Cost- 0%

Please note in the all fields, Annual Increases are 3%

After 30 years you would have $364,071
S and P would give you $471,134 assuming 10%.

Am I calculating something wrong?


« Last Edit: February 05, 2017, 06:07:28 AM by andysandp »

Papa bear

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #5 on: February 06, 2017, 05:03:02 PM »
No. That just sounds like a crappy rental house with expenses like that.


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andysandp

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #6 on: February 06, 2017, 06:44:05 PM »
Can you give me numbers for of a good rental?

I want to input it into the calculator and see the final return.

I feel like I might be missing something because the returns always seem low.  Maybe I'm reading the calculations wrong?
« Last Edit: February 06, 2017, 06:47:21 PM by andysandp »

waltworks

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #7 on: February 06, 2017, 07:27:50 PM »
A place with $2k a year in HOA that only rents for $1000 is indeed never going to make much money.

Your HOA expense number is the biggest factor here. You can certainly find standalone $100k houses that will rent for $1000/mo, and they have no HOA. Run your numbers on that kind of property.

-W

Papa bear

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #8 on: February 06, 2017, 08:02:01 PM »
I just tried to replicate your last assumptions and got different numbers.  Even with your assumptions, it turned out much better.  And I'm not sure where you'll get 10% return on the s&p.  Sign me up if you know something I don't.


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waltworks

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #9 on: February 06, 2017, 09:57:53 PM »
I just tried to replicate your last assumptions and got different numbers.  Even with your assumptions, it turned out much better.  And I'm not sure where you'll get 10% return on the s&p.  Sign me up if you know something I don't.


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10% is roughly the historical annual return on the US stock market (not including inflation).

-W

Papa bear

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #10 on: February 07, 2017, 09:20:40 AM »
That 10% would include dividend reinvestment, yes?   Then the OP needs to change his assumptions on comparing the s&p to rental real estate.  Either remove the compounding of dividend reinvestment or reinvest the rental income.

These are not apples to apples comparisons and will be hard to get this to be accurate.


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andysandp

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #11 on: February 07, 2017, 09:48:37 AM »
If you have a house with no HOA fee, then you still need to add expenses for water/sewer and other expenses.

I think it's a fair comparison to compare Real Estate with other Investments such as S and P 500.  I know it's not perfect, but it can give you a picture of your return in 30 years.

Papa Bear, you said you got different numbers?  What did you get for return?

Please give me some numbers, and I will input into calculator to see the final return.



« Last Edit: February 07, 2017, 09:51:26 AM by andysandp »

waltworks

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #12 on: February 07, 2017, 10:35:57 AM »
Why wouldn't your tenants be paying water/sewer/etc? That is standard practice (at least in the US) for single family rental homes.

-W

If you have a house with no HOA fee, then you still need to add expenses for water/sewer and other expenses.

I think it's a fair comparison to compare Real Estate with other Investments such as S and P 500.  I know it's not perfect, but it can give you a picture of your return in 30 years.

Papa Bear, you said you got different numbers?  What did you get for return?

Please give me some numbers, and I will input into calculator to see the final return.

andysandp

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #13 on: February 07, 2017, 11:47:21 AM »
Well even if there is no water/sewer expense, there will be other expenses if you don't have HOA.

This is why I would like to see an example with real numbers.  Then I can input into Calculator to see the final return.

Thanks!

waltworks

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #14 on: February 07, 2017, 12:03:24 PM »
Well even if there is no water/sewer expense, there will be other expenses if you don't have HOA.

This is why I would like to see an example with real numbers.  Then I can input into Calculator to see the final return.

Thanks!

In my real-world experience, 1% of the price of the property is a reasonable estimate for all maintenance. That can vary depending on the property, of course, but it's at least close.

All your other numbers are reasonable. Just throw out the HOA part.

-W

andysandp

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #15 on: February 07, 2017, 02:45:03 PM »
OK Let's try with no HOA fee.

Purchase Price- $100,000
Down Payment- 25%
Interest Rate- 4.5%
Loan Term- 30 Years
Other one time cost- $2000

Monthly Rent- $1000
Vacancy Rate-5%
Management Fee- 10%

Property Tax- $1200
Insurance- $800
HOA Fee- 0
Maintenance- $1000

Value Appreciation- 3% per year
Holding Length- 30 years
Sell Cost- 0%

According to Calculator after 30 years you will have $451,319

S and P at 10% compounded after 30 years you will have $471,134.

Real Estate is still less after using leverage and putting in good numbers.  Shouldn't Real Estate be much higher?
Am I calculating something wrong?
« Last Edit: February 07, 2017, 03:43:22 PM by andysandp »

Murse

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #16 on: February 07, 2017, 02:57:35 PM »
I am currently purchasing a property, I'll give you those numbers.

Purchase price-50k
Monthly rent 775/month
Annual taxes, $1100
20% down
Interest rate 5%
Insurance $600 annually.

waltworks

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #17 on: February 07, 2017, 03:03:19 PM »
If you are going to include reinvesting dividends on the S&P side (this has already been pointed out but I'll repeat it) then you have to figure out what to do with your cashflow from the rental to make it comparable. Buy more rentals? Invest the excess in the market? Something else?

The difference, in essence, is that the RE calculator is assuming your excess rental income is just sitting there.

Even so, I think you can see now why the 1% rule is the bare minimum most investors will go for on rental RE.

-W

andysandp

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #18 on: February 07, 2017, 03:42:44 PM »
Waltworks, I agree that you need to use the excess Rent and reinvest it to make a fair comparison.

I think it's just interesting using this calculator to get an estimate.  I always thought Real Estate returns would be 13%-20% compounded for all that work, but it doesn't seem that much better then 10% unless you get some outstanding Rental numbers.

Murse, what are all your costs like Maintenance costs?  How much is your Closing Costs?

Use this calculator to find the return.  http://www.calculator.net/rental-property-calculator.html


Murse

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #19 on: February 07, 2017, 04:19:08 PM »
I have yet to complete the purchase but I am estimating closing costs will likely be around 2500, and I am estimating maintenance as 10% of rent (if you do the math that is around 900$/year for a 50k property, pretty conservative if you ask me.)

Murse

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #20 on: February 07, 2017, 04:23:47 PM »
According to that calculator my COC return is around 16%, that destroys the 10% of the s&p and does not include tax breaks, or mortgage pay down.

andysandp

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #21 on: February 07, 2017, 04:34:05 PM »
No it's not 16% compounded.   If $12,500 is compounded at 16% for 30 years, you would have $1,073,123

The final return you will have is $298.661.  That's about 11% compounded.

S and P at 10% would give you $218,117.  So you still beat S and P!    Not bad!

The calculator does include mortgage pay down.
« Last Edit: February 07, 2017, 04:40:49 PM by andysandp »

Murse

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #22 on: February 07, 2017, 04:38:18 PM »
It will be compounded should I decide to reinvest the cash flow. Just because the calculator doesn't show me reinvesting it doesn't mean I won't.

andysandp

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #23 on: February 07, 2017, 04:48:38 PM »
Are you saying if you reinvest the excess rent after 30 years you should have $1,073,123?  That's what $12,500 at 16% after 30 years is.

I don't think it will be close to that.

Also in 30 years don't you need a new roof, heating system, windows, kitchen, bathroom, etc?  Does putting $900 a year and then adding inflation really cover that?



Murse

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #24 on: February 07, 2017, 04:53:36 PM »
Are you saying if you reinvest the excess rent after 30 years you should have $1,073,123?  That's what $12,500 at 16% after 30 years is.

I don't think it will be close to that.

Also in 30 years don't you need a new roof, heating system, windows, kitchen, bathroom, etc?  Does putting $900 a year and then adding inflation really cover that?
If I could consistently get properties that returned 16% and could have all of my returns immediately invested, yes. However in reality that won't happen. In reality my returns will sit in cash until I can afford another property hurting my returns. How much maintenance do people you know put into their houses annually. People I know do maybe 400$ in repairs per year on their 300k property, then you have the once every 5-10 years major repairs. Yes, I think 900$ annually averaged over 30 years will cover it.

andysandp

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #25 on: February 07, 2017, 05:16:19 PM »
Well if that's the case, your numbers work!  Looks like a great investment!

Are there any other problems with the calculator besides not including reinvesting excess rent?  I know it doesn't take Tax benefits and Depreciation into account, but I haven't found a better calculator yet.

Murse

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Re: What do you think of this Rental Investment Calculator? Is it accurate?
« Reply #26 on: February 07, 2017, 05:29:44 PM »
Honestly, no calculator is ever going to be able to do it all. Too many unknown variables. My goal is 15% cash on cash return minimum with conservative calculation. Nothing else really matters to me. Other investors do different things but my goal is to put cash in my hand. Chasing appreciation can have huge rewards but also huge losses. No matter what you do make sure you are at least cash flow positive. Even if it's a 1% return annually it beats holding a property that you lose money on every month because you were chasing appreciation. What happens if the market crashes and you are losing money monthly while you are holding onto a property waiting for prices to recover?

If you go after cash flow it doesn't really matter what happens to the value of the property, you can wait out a dip in the market and get paid for it.