RightFiguresThe loan payment depends on the price
Net operating income is effective rent minus the operating expenses you enter. It does not change when the price changes. Room for loan payments is that income minus the target cash flow.
The down payment is the price times the percent you enter, rounded half up to the cent. The loan is the rest. A price qualifies only when that loan is at least $0.01 and twelve regular principal-and-interest payments fit in the room. The result is the highest such price from $0.01 through $100,000,000.00.
The regular payment is the same cent rounding as the mortgage amortization calculator. Annual debt service is that payment times 12. The final scheduled month can differ, and this page does not estimate it. How does paying down a mortgage work? describes principal and interest. It does not set this rounding.
A down payment below 100% can still round to the entire price. That price has no mortgage, so it is not accepted. A 100% down payment is rejected before a price is shown, because the cash flow would no longer depend on the price.
$2,000 rent and a $4,800 target
At 5% vacancy and $6,000.00 of operating expenses, net operating income is $16,800.00. A $4,800.00 target leaves $12,000.00 for loan payments. With 20% down, 6% interest and 30 years, the highest price is $208,490.55. The down payment is $41,698.11, the loan is $166,792.44, and the regular payment is $1,000.00. Twelve payments are $12,000.00, so cash flow is $4,800.00.
The next cent of price raises the regular payment to $1,000.01. This price is not $16,800.00 divided by the 5.60% cap rate from the cap rate calculator. Entering the price, the $41,698.11 down payment, no closing costs, no renovations and $12,000.00 of loan payments on the rental property ROI calculator returns the same $16,800.00 net operating income and $4,800.00 cash flow.
What is left out
Closing costs, renovations and a property tax that rises with the price are not in the model. Operating expenses stay at the dollar amount you type. The page does not show a cap rate, a cash-on-cash return or a lender limit. Lesson 8 describes cap rate as net operating income divided by value, which this page does not solve. IRS Publication 527 discusses rental income and expenses. This page does not calculate taxable income.
If the rent does not cover the target before any loan payment, no price is shown. If nothing is left for a payment, no price is shown either. A down payment below 100% still creates a loan once the price is large enough to round to one.
Sources & review
- Lesson 8, Capitalization — California State Board of Equalization
- Publication 527, Residential Rental Property — Internal Revenue Service
- How does paying down a mortgage work? — Consumer Financial Protection Bureau
Last reviewed: . The formula is reproduced above so you can check the math independently.
Educational estimate only. This price is not an appraisal or a lender limit.