1. What is the Rental Property Affordability Calculator?

The Rental Property Affordability Calculator helps investors determine the maximum purchase price they can afford for a rental property based on either the capitalization rate (cap rate) method or cash flow analysis.

2. How Does the Calculator Work?

The calculator uses two main formulas:

Where:

• \( \text{Net Income} \) — Annual rental income minus expenses ($)
• \( \text{Cap Rate} \) — Capitalization rate (percentage)

Explanation: The cap rate method divides the net operating income by the desired capitalization rate to determine the maximum purchase price.

3. Importance of Affordability Calculation

Details: Calculating the affordable purchase price helps investors make informed decisions, avoid overpaying for properties, and maintain positive cash flow.

4. Using the Calculator

Tips: Enter net annual income in dollars and desired cap rate as a percentage (e.g., 5.5 for 5.5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good cap rate for rental properties?
A: Typically 4-10%, with higher rates in riskier markets. The "good" rate depends on location and property type.

Q2: How is net income calculated?
A: Gross rental income minus all expenses (taxes, insurance, maintenance, vacancies, etc.) but before mortgage payments.

Q3: Should I use gross or net income?
A: Always use net income (after expenses) for accurate affordability calculations.

Q4: What other factors affect affordability?
A: Financing terms, property taxes, insurance costs, maintenance needs, and local market conditions.

Q5: Is this calculator suitable for commercial properties?
A: Yes, the cap rate method is commonly used for both residential and commercial rental properties.