Real Estate Investment Calculator: Definitions & Assumptions

Real Estate Investment Calculator: Definitions & Assumptions

Mortgage: based on fixed mortgage rate per year calculated on a semi-annually basis.

Closing Costs: based on Toronto properties with not more than two single family residences purchased on or after March 1, 2017. The value is the sum of the Toronto and Ontario land transfer tax plus an additional $1,500 of legal & admin fees.

Capital Required: the sum of the Downpayment, Renovations, and Closing Costs.

Investment Period & Appreciation p.a. (%): used to calculate returns at the end of your specified investment period.

Month 1 Rent: the sum of rental income for all units in the property.

Month 1 Operating Expenses: all operating expenses excluding mortgage payments. This includes items, such as utilities, insurance, property tax, maintenance, and vacancy allowance.

Month 1 Cash Flow: monthly cash flow, calculated as Rent – Operating Expenses – Mortgage Payment.

Year 1 Cash Flow: the sum of Month 1 Cash Flow x 12.

Year 1 Equity Gained: the principal portion of mortgage payments paid down from the first year.

Year 1 Cap Rate (Capitalization Rate): calculated as the ( Annual Rent – Operating Expenses) / (Purchase Price + Renovations x 2.5)

End Of Investment Period Cash Flow: the future value of all cash flows at the end of the investment period. We have assumed a 3% annual rent increase, 3% annual expense increase, and a 3% annual inflation rate. Rent increases for existing tenants are subject to caps set by the government, currently at 2.2% per year for 2020. For new leases, annual increases are higher at around 5-10% per year.

Equity Gained: the total principal portion of mortgage payments that has been paid down.

Market Appreciation: the capital gained based on the future value of the property at the end of the investment period, less appraised value after renovations in Year 1, Closing Costs and Selling Costs.

Value Add Appreciation: the capital gained after renovations in Year 1 based on a newly appraised value equal to Purchase Price + Renovations x 2.5 in Year 1.

Total Return ($): the total of all Cash Flows, Equity Gained, Market Appreciation, and Value Add Appreciation accumulated for the entire investment period less Selling Costs and Closing Costs.

Total Return (%): Total Return ($) / Capital Required.

Annual Return (%): {[(Total Return + Capital Required) / Capital Required) ] ^(1/ Investment Period) } – 1.

Property Rating: determined based on the Cap Rate for the property compared to average Cap Rates within its Type (condo / house / commercial). Market Cap Rates for condos are between 2-2.5% and market Cap Rates for houses and commercial properties are between 3-3.5%. Cap Rates above these values are considered “Outperform” and Cap Rates below these values are considered “Underperform”.