ABOUT THIS CALCULATOR: This calculator is designed to work out how much rent you would need to charge to cover the costs of a property, assuming that you borrow the full value of the property. This is not a normal test but it gives you an idea of what the property should bring in if it were run as a pure investment. Note that only interest is calculated, not repayment of capital. In real life, other considerations apply such as capital gains (assuming that the property appreciates in value) and negative gearing (in some jurisdictions).
You might use this calculator to work out whether or not a property is overvalued. For example, if you would need to charge three or four times the market rent to cover costs then alarm bells might ring. This is not to say that the property is a poor investment. Property prices might rise so much that your capital gains outweigh other considerations. However, property prices can also fall dramatically.
NOTES FOR USING THIS CALCULATOR: Only enter numbers (e.g. enter 65000 not $65000). If you try to enter a currency symbol you will get an NAN (Not A Number) error appear in each box. Whenever you insert a number or change an option, the calculator will re-calculate everything.
HOUSE PRICE: You can select the house price from the pulldown menu or enter a price in the box. You should choose the full market value of the house / flat / office. However, you can also just choose the amount borrowed on the property, if you like.
MORTGAGE INTEREST RATE: choose the interest rate that you are charged. Interest rates will vary so be conservative (i.e. choose a rate that will cover for possible rate rises).
PROPERTY COSTS: these are property overheads like land taxes, repairs, insurances, legal fees, major gardening (like tree lopping) etc. Do not include letting agent's fees since these are covered below.
MARKET RENT: choose a market rent for the property. This is what the prevailing market (in this area, and for this type of property) will pay. This calculator works on a weekly rental.
AGENT'S CUT: choose or enter the percentage that the letting agent will take in commission for letting the property.
TOTAL INTEREST PAYMENTS PER YEAR: this is the amount borrowed multiplied by the annual interest rate.
COST PER YEAR: this is the total interest payments plus the other property costs.
MARKET RENT: gross annual income: this is the total rental payments collected by the agent.
MARKET RENT: net annual income: this is the total rental payments collected by the agent minus the agent's commission.
THEORETICAL RENT: annual rent needed to cover costs: this is the theoretical rent that you would need to charge per year to cover interest repayments + costs + agent's commission.
Weekly rent needed to cover costs: this is the theoretical rent that you would need to charge per week to cover interest repayments + costs + agent's commission.
THEORETICAL / MARKET RENT: this is the theoretical rent divided by the market rent. For example, if you needed to charge $1,500 per week to cover all your costs but the market would only tolerate a rental of $500 per week this value would be 3 ($1,500 / $500).
INCOME: this is the money that you make or lose per year. It is calculated by subtracting the total costs per year from the net annual market rent.