1. What is Investment Borrowing Capacity?

Investment borrowing capacity refers to the maximum amount an investor can borrow for investment purposes, calculated based on rental income, principal income, and prevailing interest rates. This metric is crucial for real estate investors and property developers.

2. How Does the Calculator Work?

The calculator uses the investment capacity formula:

Where:

• \( Gross\ Rental \) — Total rental income from investment property
• \( Principal\ Income \) — Primary source of income
• \( Rate \) — Interest rate or capitalization rate (as decimal)
• \( 125\% \) — Lenders typically consider 125% of rental income

Explanation: The formula accounts for both rental income (with a buffer) and primary income, divided by the applicable rate to determine borrowing capacity.

3. Importance of Investment Capacity Calculation

Details: Accurate investment capacity calculation is essential for determining how much you can borrow for investment properties, planning property acquisitions, and assessing financial feasibility of investment opportunities.

4. Using the Calculator

Tips: Enter gross rental income and principal income in your local currency. Input the rate as a decimal (e.g., 0.05 for 5%). All values must be valid (non-negative amounts, rate > 0).

5. Frequently Asked Questions (FAQ)

Q1: Why is rental income multiplied by 125%?
A: Lenders typically apply a 125% multiplier to account for potential vacancies, maintenance costs, and other property-related expenses.

Q2: What types of rates can be used in this calculation?
A: You can use interest rates (for loan calculations) or capitalization rates (for property valuation), depending on your specific investment analysis needs.

Q3: How often should I recalculate my investment capacity?
A: Recalculate whenever your income changes, interest rates fluctuate, or you're considering new investment opportunities.

Q4: Does this calculation consider other debts?
A: This is a basic calculation. For a comprehensive assessment, lenders will also consider your existing debts, credit history, and other financial obligations.

Q5: Can this formula be used for commercial properties?
A: Yes, the same principle applies, though commercial properties may use different multipliers and assessment criteria.