What is a Rental Income Calculator and Factors Affecting It

A rental income calculator is a tool that helps landlords and property owners estimate their potential rental income and profitability.

April 27, 2023

Rental Income Calculator

Rental Income Calculator

Are you looking for a passive income source? The impact of inflation on the cost of debt has taken its toll and is now nearing its end. The good news is that multifamily apartment rental prices are down 10% to 20% depending on the market. It’s a great time to get ready to passively invest in rental apartment real estate. If you are new to apartment rental investing, understanding how to create a rental income calculator and use it to project a potential investment income is essential. If you are already an apartment property investor, you already know the benefits of such.

You must consider numerous factors to calculate how much income you can earn from an apartment rental investment. A rental property income calculator needs to build in these factors to accurately project income.

What is Rental Income?

A rental property can be residential or commercial but multifamily rental properties with 5 units or more are considered commercial property. Any income generated from renting a property is rental income.

Multifamily Real estate investment is one of the safest types of income property investment since most everyone needs a roof over their heads. One of the major benefits of investing in income-producing property is the IRS allows you to depreciate your investment improvements and write off income that would otherwise be taxed.

In addition to the depreciation benefit you also can write off all the expenses associated with operating the property like maintenance, mortgage interest, property taxes, etc. A rental income calculator will help you determine your ideal rental rates for your apartment units.

The government taxes rental income is similarly to any other income source. It means your rental income is taxed at the same rate as your other income, like salary or wages. You need to use a rental income calculator to determine the income you expect to generate from your apartment investment so that you can develop tax strategies to minimize your taxable income.

What is a Rental Income Calculator?

It is basically a spreadsheet or matrix where you compare your property to your competitor properties to determine the optimal rents for your building. You basically come up with an average rent for each unit type i.e., studio, one bedroom, two bedroom, etc. for the area, and then for each property move the rate up and down based on the various factors that impact the rent prospective tenants are willing to pay.

What Factors to Consider When Pricing Your Rental Units?

Without performing due diligence, no investor should price their units. A rental income property calculator will help you do just that. If you do not it may lead to over or pricing neither of which is good for you or your investment.

When building your rental income calculator, you need to consider the appropriate factors to ensure accurate rent projections. Here are some of the most important factors to consider,

Property Location

Location plays a major role in what rents are achievable. For example, a posh area will bring higher rents than an undesirable neighborhood. You need to rate the subject and competitor property’s locations and adjust the rents for each in your rental income calculator up or down based on which ones have the best to worst location.

Property Amenities

When assessing the subject and its competitor properties make note of what amenities each of them offers and in your rental income property calculator adjusts rents up or down for each based on which offers the best to worst amenities.

Property Condition

You need to rate the subject and competitor properties for condition. In your rental income calculator adjust rents up or down for each property based on best to worst condition.

Market Vacancy

Market vacancy affects the subject and its competitor properties in the same way. In setting your rents you need to determine what vacancy rate you are willing to accept and adjust your rents accordingly in your rental income property calculator. If you are ok with higher than market vacancy, increase your asking rents and if you want to be below market vacancy, lower your asking rents.

How to Finalize Your Rents Using Your Rental Income Calculator?

Your rental income property calculator should look something like this for each unit type you have,

Studio Units Subject Property Comparable 1 Comparable 2 Comparable 3
Base Rental Rate 500 500 500 500
Location Adjustment +100 -50 -75 +200
Amenity Adjustment 0 -100 +75 0
Condition Adjustment +50 +200 +50 -100
Vacancy Adjustment -75 0 0 0
Estimated Market Rent $575 $650 $550 $600

Use a rental property income calculator to make sure you generate the most rent possible on an annualized basis.

Rental Income Calculator: Conclusion

Investing in a rental property and generating an additional income source is always possible. However, before investing, be sure to assess the property’s income potential by using a rental income calculator. You can then use these projections to determine the value and make sure you pay the right price that leads to your expected investment returns.

A major component that investors must consider is partnering with the right property management company. You need to consider the cost, extent, and quality of service the company provides. Reach out to us at Summerfield Management. We have years of expertise managing multi-family properties and numerous satisfied customers.

Rental Income Calculator: FAQs

Q: What is a Rental Income Property Calculator?

A: It is a tool to assess and track what your units are worth at any given time in the market.

Q: What is a rental market vacancy?

A: It is when you total all the vacant units in a certain market and divide it by the total number of units.

Q: What is the difference between a rental income calculator and a rental income property calculator?

A: Nothing they mean the same thing, so basically there is no difference between both.