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How to Use the Hauseit Rental Property Calculator [Tutorial] - YouTube
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In this tutorial video, we will show you
how to use the Rental Property
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Calculator available at Hauseit.com. If
you're not already on the calculator
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page, you can get here by visiting Hauseit.com. The spelling is at the top and
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once you're here click on calculators
and go to the buy tab as you go down on
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the right side, you will see Rental
Property Calculator. There's also a
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number of other calculators as well if
you're buying a rental property you
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might be interested in your buyer
closing costs as well that's critical as
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you figure out what your return profile
will look like and it may also be
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helpful for you to look at the Mansion
Tax Calculator if you're buying
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something above a million. As well as the
Mortgage Recording Tax Calculator if you
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are financing your purchase final note
as well the purchase CEMA Calculator is
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pretty interesting. There is an
opportunity for you to save some money
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and reduce the mortgage recording tax if
the property has an existing loan on the
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sellers side and you're able to persuade
the seller to assign some of that
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mortgage to you and that would reduce
the amount of new mortgage your
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underwriting and therefore, it would help
you save some money on your closing
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costs. So going back to the Rental
Property Calculator, the ultimate purpose
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of this calculator and the exercise is
to help you compute a couple of metrics
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for investment properties that will help
you analyze one particular investment
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against another. In particular, we are
interested in the cap rate because the
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cap rate is a very common metric used to
compare and contrast different real
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estate investments across cities across
neighborhoods and across specific
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opportunities and it's also interesting
to figure out your annual cash flow as
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well as possibly your cash on cash
return.So if we were to take just a
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hypothetical example, let's start with
the purchase price say of 1 million two
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hundred and fifty thousand dollars
for a closing cost estimate customarily
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for a condominium or for a house.
Assuming you're financing your your
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buyer closing costs at least in New York
City are going to be around 4% so we
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could either quickly just use the buyer
closing cost calculator to compute those
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or we could just take an Excel
spreadsheet. But in this case, let's
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quickly digress and go to the buyer
closing cost calculator. Let's assume
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again we have a sale price of 1.25
million and let's say we are financing
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50% so in that case we'd need to get 50%
of 1,250,000 which is six hundred and
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twenty five thousand. Well choose condo
here and as you can see here the total
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closing costs are about 40k. Now they're
lower than the four percent we mentioned
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because we're actually financing a
relatively small amount of the purchase
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price. If we were to finance say 80
percent which is more common, you would
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see that the closing costs have gone up
and they'll continue to go up. The more
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that you finance the reason for that is
the mortgage recording tax obviously
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only applies to the amount of loan that
you need. So if you have a smaller loan
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you're paying a much smaller mortgage
recording tax so let us take that
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$40,000 number for closing costs. We'll
put that in the rental property
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calculator and then we would probably
want to figure some sort of monthly
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rental income. You know if you're buying
a condominium like this in lower
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Manhattan it's probably a very small
two-bedroom if that it's probably more
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likely to be a one-bedroom apartment so
you know we could take a monthly rental
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income say of 5500 hypothetically and
for our interest rate put something like
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five percent now our next step would be
to input a mortgage loan amount. So if we
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were to finance half of the
purchase we would therefore have a loan
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of six hundred and twenty five thousand
dollars as far as property taxes and
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common charges are concerned. We can go
ahead and just estimate and say that
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each one is seven hundred and fifty
dollars a month. Now these are annual
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fields so in order to calculate the
annual property taxes and common charges
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we would just multiply 12 by 750 giving
us nine thousand a year. So we would put
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nine thousand under property taxes as
well as nine thousand under common
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charges. As you can see here, we've
already calculated a preliminary cap
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rate cash flow and cash on cash return a
couple of the things that we do want to
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think about in no particular order. The
vacancy rate is important because up to
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this point our entire calculation has
assumed that during the course of a
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normal year, there would never be any
vacancy and even in a city like New York
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where you have limited housing stock and
very strong demand. It is possible from
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time to time maybe every year or every
other year you have a few weeks or a
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month or month and a half or two months
of vacancy that being said for this
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example we can possibly assume that an
apartment is going to be vacant for one
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month out of every 12. Ideally, it's much
lower than that in New York City but
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let's consider this a semi conservative
assumption so one month out of 12 is
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8.33%
so if we were to go back into calculator
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and we were to input an 8% vacancy rate
that would give us some degree of
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cushion for the possibility of our
investment being vacant. Now as far as
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property management fee is concerned,
this is definitely something optional so
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if you are in your city where you're
investing and you want to be semi active
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or fully active you probably don't need
a property manager so you could put zero
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here. But if you're out of state you need
somebody to take care of things for you
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to let in the plumber, let in the super
things like that deal with the tenant
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may want to budget something for a
property management fee. So we could put
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in a very low estimate possibly 5% per
year that would be 5% of your monthly
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rental income that you would pay the
property manager. So at this point we've
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essentially filled in everything here
with the exception of homeowner
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insurance maintenance as well as the the
cost of any renovation for your typical
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apartment a homeowner's insurance
premium is going to be a thousand to two
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thousand dollars a year the same would
be the case for a so for homeowners
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insurance premium let's put in $1,000
and keep in mind it could be a little
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higher if you're buying a mixed use
property multi-family a more expensive
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home town house or apartment. You can
find out an estimate a more accurate
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estimate by using an online quote
generator. There's a ton of them out
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there feel free to take a look so if we
add the homeowner's insurance premium it
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is gonna further lower our return
related metrics because it is another
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cost that we do have to incur now as far
as maintenance and repairs you certainly
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do want to input something here because
it is unrealistic to have a real estate
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investment that doesn't require upkeep
over time so we've put 5,000 which may
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be a little high for a property like
this, But if you annualize or basically
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prorate large capital projects over time
such as replacing your windows replacing
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the HVAC unit, it may very well be the
case that you pay about 5k a year for a
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property that's just over a million.
Finally if we want to include a cost of
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renovation in this investment, we can go
ahead and do so and as you can see
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adding something to renovation costs
will lower the cap rate and it will
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depress many of our metrics so our cap
rate is currently two point five nine
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percent. If we do a $50,000 renovation,
our cap rate goes down to two point four
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nine percent so a little bit about cap
rates. This cap right here is relatively
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low although in New York City where cap
rates are low in general it's not the
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end of the world. If you are in another
city a less vibrant city economically
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speaking this cap rate would be
almost a joke. It would be way too low
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for it for it to be worthwhile so in New
York City cap rates on the higher end
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are going to be maximum three and a half
four percent for your typical apartment
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residential apartment. In the city,
you certainly can't get higher if you if
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you go into further out neighborhoods
bed-stuy Crown Heights might be a nice
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hybrid between the low-risk type
investment qualities of something in
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Manhattan plus a little bit of upside. If
you were to go into further out into
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Queens the Bronx you certainly can't
find a higher cap rate but in theory it
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is proportionate with the increased risk
and possible higher vacancies and other
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additional risks associated with being
in an area that is essentially less
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economically vibrant that being said. You
can play around with the calculator to
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see if your investment is worthwhile and
you could also compare investment one
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against investment two using these
various metrics as your variables so if
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we were to say for example instead of
this property which gave us two and a
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half percent cap rate we did a purchase
that was eight hundred thousand and
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somehow the monthly rental was only a
little bit less. Let's say it was 4900
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and let's say that this property was
already renovated and our closing costs
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were lower let's say our closing costs
were only twenty thousand and again we
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can just double check here what they
might be assuming we're financing 50%
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it looks like our closing costs are
going to be 20k so in here we would put
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20k for the closing costs and we would
also want to lower the mortgage loan
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amount to our new figure of 400. We
probably want to lower the property
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taxes because it's a smaller property
less expensive same goes with the common
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charges HOA premium we can keep the same
and maybe the maintenance and repairs we
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lower it to 3500. So in this case, as you
can see we've actually come up with a
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much higher cap rate this would actually
be a very good investment in especially
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in Manhattan. This would be a very
appealing opportunity relative to what's
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out there in the city but just to
re-emphasize, if you were in another city
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Detroit for example. If you're in Detroit
a cap rate should be probably double
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this at a minimum to make it worth your
time. If you have any questions, leave us
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a comment below the video and don't
forget to check out the Buyer Closing
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Cost Calculator as well as a number of
other calculators here that might be of
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interest. If you're still renting your
primary home, you can also compute net
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effective rent which helps you
understand the relative attractiveness
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of any landlord incentives such as a
free month and contextualize it based on
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the advertised rent amounts. Let us know
if you have any questions again leave us
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a comment send us an email give us a
call we'd love to hear from you
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