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How much should I pay for a rental property?

 

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Question:

I am about to buy an investment property. I want to get a return of 5% cash on my cash investment. How can I determine the maximum price that I should pay, given that I know rental income and operating expenses?

Answer:

Use the calculator below, simply put in your numbers.

Note: The logic behind the formulas used is described here:

http://www.creonline.com/articles/art-216.html
Purchase Price
% down payment
Gross Rent (per month)
Holding cost (tax, insurance, management - per month)
Loan interest %
Principal %
(1.5 for 30yr amortization, 0 for IO loan)
Desired cash on cash return (%)
Net Operating Income (NOI) = Rent - Holding cost
Loan Payment monthly
Annual Debt Service/Loan Principal Amount = Loan Constant
Derived Cap Rate:
(LTV debt ratio x mortgage constant) + (LTV equity ratio x equity constant)
NOI/Cap Rate = Maximum Purchase Price



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