Figure the ROI Potential of Residential Income Opportunities

Calculate Your Monthly Residential Income

This tool will figure factors for determining the viability and potential of a residential income property. Calculated factors include: debt service coveratge ratio (DSCR), net operating income (NOI), net income multiplier (NIM), capitalization ratio (CAP), and more.

Property Price & Downpayment Info Amount
Purchase Price:
Down Payment: %
Amount Owed on Property:
Mortgage Loan Structure Amount
Loan Term (Years):
Interest Rate (%): (Get Current Rates)
Payment Type (Select P & I or Interest-Only):
Your Monthly Loan Payment ($):
Closing Costs ($):
Income Calculation Amount
Gross Scheduled Income (GSI):
Vacancy Rate (%):
Number of Units:
Other Income (Annual laundry, late fees, etc.):
Capitalization Rate Required (Optional):
Annual Opertating Expenses Amount
Accounting ($):
Admin/Legal/Bank Charges ($):
Advertising ($):
Electricity ($):
Elevator ($):
Gas ($):
Landscaping ($):
Legal ($):
Maintenance & Repair ($):
Payroll Taxes ($):
Permits & Licenses ($):
Pest Control ($):
Pool ($):
Property Insurance ($): % of property value
Property Management ($): % of gross scheduled income
Real Estate Taxes ($): % of property value
Security ($):
Supplies ($):
Telephone ($):
Tenant buyout ($):
Trash ($):
Water ($):
Other ($):
Other ($):
Commercial Property Income Statement & Cash Flow Amount
Gross Scheduled Income (GSI):
Less Vacancy:
Total Actual Annual Income:
Other Income:
Gross Operating Income (GOI):
Total Operating Expenses:
Net Operating Income (NOI):
Annual Debt Service (Mortgage Payments):
Before Tax Cash Flows:
Key Operating Ratios Amount
Capitalization Rate (CAP):
Cash on Cash (COC):
Gross Rent Multiplier (GRM):
Net Income Multiplier (NIM):
Debt Coverage Ratio (DCR):
Expense Ratio (ER) per Unit :
Price Per Unit:
Property Value Based on Required CAP Rate (if entered):

Current Local Mortgage Rates

The following table shows current San Diego 30-year mortgage rates. You can use the menus to select other loan durations, alter the loan amount, change your down payment, or change your location. More features are available in the advanced drop down

How to Figure Out Your Residential Income Property Potential

An investment property is one of the most secure ways to establish a monthly cash flow, but it’s not one of the easiest. Our convenient residential income property potential calculator will help you decide what kind of home to invest in, as well as show you the full monetary potential of a particular property.

From 2002 to 2007, investing in rental properties became all the rage for average Americans, thanks to easy-breezy financing and small down payment requirements. Suddenly, residential income property and house flipping spawned their own websites, TV shows, and subculture.

Predictably, whatever goes up must come down, and the real estate market came tumbling back to earth in 2007. Since then, rental properties have fluctuated, but a good investment opportunity can still be had if you know where to look - and what to look for.


So how can one evaluate the potential earnings from a rental property? Well, here are four ways investors look at residential income property potential.

Sales Comparison Approach

This popular method of valuing income-generating houses simply compares similar houses that have rented or sold over a specified term. In order to plot any trends, many investors like to look at the sales comparison approach (SCA) over a long period of time.

For example, the SCA can be computed using the price per square foot. This makes it easy for investors to understand what the value of their property should be. If a 2,500 square foot property is renting at $1 per square foot, investors can expect to fetch the same rental income from a similar home in the same area.

Bear in mind that the SCA is a generic comparison that doesn't take into account the uniqueness of every rental property. That said, you should always enlist the help of a certified appraiser when you request a sales comparison analysis.

Capital Asset Pricing Model

The capital asset pricing model (CAPM) is a more complex tool that takes into account the financial risks of income property investing. In essence, it compares the return on investment (ROI) you would reap from a rental property to other investments that are considered risk-free, such as treasury bonds.

Because properties come in every size, shape, and condition, it's important to note that the CAPM includes risk factors of real estate income generation. An older property will likely incur more maintenance expenses, and a property located in a high-crime area will cost more to secure. Once you include these risk factors, the expected ROI on a guaranteed (risk-free) investment may well exceed the ROI from rental income. In that case, it doesn't make much sense to take the risks associated with property investment. Real estate management firm CBRE conducted a survey of North American cap rates which showed the following cap rates in the second half of 2019.

Property Type Subcategory Cap Rate
Office CBD 6.65%
Office Suburban 7.80%
Industrial - 6.13%
Retail Neighborhood 7.47%
Retail Power 8.54%
Retail High Street 4.78%
Multifamily Infill 5.11%
Multifamily Suburban 5.37%
Hotels CBD 7.99%
Hotels Suburban 8.55%

Their full survey results also include breakdowns by class level. Across any property category cap rates are higher on higher-risk units with lower class ratings.

Cost Approach

The cost approach to evaluating real estate investment in rentals is the most practical approach because it assesses the value of the property in relation to its best use. In other words, the value is linked to probable best usage. Because this approach is often used to gauge the value of vacant land, as an example, let's take a vacant lot and find its best use value.

A real estate developer will pay a pretty penny for a few acres of land to build condominiums. But if the land in question is twenty miles away out in the middle of nowhere and surrounded by oil fields, the best usage of that land is not in building condos. Instead, the value is in possibly annexing the land to find more oil, and that's how its market value is established, long before any ground is broken.

The cost approach and best use determination are also useful in putting a price on property, which has yet to be zoned as residential. This is because the developer will have to spend a bundle on rezoning. This method is much more accurate when applied to newer houses than to older structures.

The Income Approach

This method of tabulation takes the potential income for the rental property and compares it to the initial investment. Often used for residential rentals and commercial property investments, the income approach focuses on the projected annual income divided by its current value. If a rental cottage costs $120,000 to buy and the projected monthly income from the rental is $1,200, the capitalization rate is 12 percent (12 x 1200/120,000).

Of course, the above example is oversimplified. In real life, you would have to pay interest charges on the mortgage, and there is one additional factor in the equation: the dollars you receive in future rent payments may or may not be more valuable than today's dollar.

The income approach can go into minute detail for precise calculations. Here are some of the considerations of the long-form calculations:

Property Assumptions

  • Purchase Price
  • Down Payment
  • Loan Term
  • Interest Rate
  • Principal & Interest Payment
  • Closing Costs
  • Gross Scheduled Income (GSI)
  • Vacancy Rate
  • Number of Units

Pro-forma Income Statement & Cash Flow

  • Gross Scheduled Income (GSI): The maximum possible annual income you receive if everyone pays their rent.
  • Less Vacancy: The gross operating income multiplied by the vacancy rate.
  • Total Actual Annual Income: The annual income collected after you deduct the vacancy amount.
  • Other Income (laundry, late fees, etc.)
  • Gross Operating Income (GOI): Subtract the vacancy amount from the GSI and then add other income.
  • Total Operating Expenses: The sum of all your annual operating expenses.
  • Net Operating Income (NOI): This is your profit after you deduct all expenses, excluding the mortgage.
  • Annual Debt Service (mortgage payments): Your total annual mortgage payment, including the principal and interest.
  • Before Tax Cash Flows (BTCF): The positive cash flow your property generates annually.

Annual Operating Expenses

  • Accounting
  • Admin/Bank Charges
  • Advertising
  • Electricity
  • Elevator
  • Gas
  • Landscaping
  • Legal
  • Maintenance & Repair
  • Payroll Taxes
  • Permits & Licenses
  • Pest Control
  • Pool
  • Property Insurance
  • Property Management
  • Real Estate Taxes
  • Security
  • Telephone
  • Tenant Buyout
  • Trash
  • Water
  • Other

Key Operating Ratios

  • Capitalization Rate: The net operating income (NOI) divided by the purchase price of the property - the higher the percentage, the better.
  • Cash on Cash (COC): This is your return on investment.
  • Gross Rent Multiplier (GRM): This represents the purchase price divided by the gross scheduled income (GSI).
  • Net Income Multiplier (NIM): This is the purchase price divided by the net operating income (NOI).
  • Debt Coverage Ratio (DCR): The net operating income divided by the annual debt service - the higher, the better. A DCR below 1.0 means the property is in the red with a negative cash flow. A DCR above 1.2 is seen as a good cash flow for a property.
  • Expense Ratio (ER) Per Unit: This is the total operating expense divided by the gross operating income (GOI), and a percentage below 35 is desirable.
  • Price Per Unit: The purchase price divided by the number of units you have in the building.
  • Property Value Based on Required CAP Rate: This is the value of the property based on your required capitalization rate.

Your Future in Real Estate Rentals

While there is still a small fortune to be made in income property, times have changed. No longer can you hope to flip a house with no money down. But if you know how to value real estate property, and you employ a little of each of the four valuation methods outlined above... your fortune awaits.

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