RE
Real estate model
ZHVI prices · ZORI rent · standard amortization · 8.3% vacancy.
The most assumption-heavy model in Kairometric — so every lever is visible. Home values come from the Zillow Home Value Index; rent from the Zillow Observed Rent Index; financing follows a textbook amortization schedule at the rate you choose; operating expenses run at 35% of ZORI rent, with vacancy at 8.3%. The portfolio value you see each month is a comprehensive net-of-everything figure: home appreciation, equity buildup, all rental income earned, and all costs paid — including an assumed 5% realtor fee at sale.
How it works
01
We pull real home value and rent history from Zillow's public research data.
You pick a region (metro, city, ZIP, or neighborhood). Zillow publishes monthly ZHVI (home value index) and ZORI (observed rent index) data across multiple geography levels — from national down to ZIP and neighborhood. Where Zillow doesn't publish data directly for a smaller area, we fill in values from the nearest available covering geography: a ZIP without its own ZHVI series will use the city or county figures it falls under, and ZORI follows the same logic. ZHVI goes back to 2000; ZORI to 2015.
02
We compute the loan amount from the actual regional price.
The ZHVI value at the start of your simulation window is the purchase price. Your down payment is subtracted from that, and 2% closing costs are rolled into the loan. So loan = ZHVI_price − down_payment + (ZHVI_price × 2%). The monthly mortgage payment is then derived from this loan amount, your rate, and the term.
03
We run a precise month-by-month amortization.
Each month, interest is computed on the remaining balance using effective compounding. The scheduled payment covers interest first; the remainder reduces principal. Your optional extra monthly payment (recurringPayment) goes entirely to additional principal on top of the scheduled amount, paying off the loan faster.
04
We model rental income, expenses, and property tax from real data.
Gross rent is ZORI for your region. We subtract 8.3% for vacancy (roughly one month empty per year) and 35% of gross rent for operating expenses. Property tax uses regional effective rates derived from Census ACS (American Community Survey) — the effective rate is computed as median real estate taxes paid divided by median home value, observed annually at the state and county level. Where a year of data is missing between two known values, the rate is linearly interpolated; if data simply hasn't been published yet for recent years, the most recent known rate is carried forward. For regions that don't have their own ACS survey coverage — such as a specific neighborhood or ZIP code — the rate is inherited from the nearest available geography: the county rate fills in first, then the state rate as a last resort. The rate is then applied monthly to the current ZHVI home value, so the monthly tax amount rises as the home appreciates.
05
We net everything into a single portfolio value.
Portfolio value = home appreciation since purchase − 5% realtor fee − 2% closing costs − cumulative mortgage outflows + cumulative net rent − cumulative operating costs and taxes + (down payment + all principal paid). This gives you a 'what would I net if I sold today' figure for every month of the simulation.
What you put in
LocationThe region used to pull ZHVI home price history and ZORI rent data. The ZHVI value at the simulation start date becomes the purchase price.
Initial investment (down payment)The cash you bring to closing. The loan is computed as: ZHVI purchase price − down payment + 2% closing costs.
Recurring payment (extra principal)An optional amount added on top of the scheduled mortgage payment each month, applied entirely to principal. Reduces the loan faster and builds equity sooner.
Investment lengthHow many years to hold the property.
Mortgage rateAnnual interest rate, fixed at purchase for the full holding period.
Mortgage type30yr Fixed or 15yr Fixed — sets the term and the scheduled monthly payment.
The equation
Vₜ = (Hₜ−H₀) − F − C + ΣCFₘ + (D + Pₜ)
Eₜ = Hₜ − Bₜ
Vₜportfolio (net) value at month t
Frealtor fee = H₀ × 5% (assumed at eventual sale)
Cclosing costs = H₀ × 2% (rolled into the loan at purchase)
H₀home value (ZHVI) at purchase
Hₜhome value (ZHVI), month t
CFₘnet cash flow month m = R·(1−v) − M − X − T
Rgross monthly rent (ZORI)
vvacancy rate = 0.083
Mscheduled mortgage payment (interest + principal)
Xoperating expenses = R × 35%
Tproperty tax = Hₜ × regional_rate / 12
Ddown payment
Pₜcumulative principal paid through month t (scheduled + extra)
Eₜdisplayed equity at month t = Hₜ − Bₜ (home value minus outstanding balance)
Bₜoutstanding loan balance at month t
A worked example
Illustrative numbers — region ZHVI = $400,000, down payment = $80,000, ZORI rent = $2,200/mo, 30yr fixed at 7.0%.
| Month | ZHVI change | Home value | Loan balance | Equity (Hₜ−Bₜ) | Net cash flow |
|---|---|---|---|---|---|
| Start | — | $400,000 | $328,000 | $72,000 | — |
| 1 | +0.25% | $401,000 | $327,719 | $73,281 | −$1,287 |
| 12 | +2.5% YTD | $410,000 | $324,550 | $85,450 | −$1,360 |
| 60 | +10% total | $440,000 | $309,000 | $131,000 | −$1,290 |
- Loan = $400,000 − $80,000 + $8,000 (2% closing) = $328,000. Monthly payment = $2,135 (interest $1,854 + principal $281 in month 1).
- Net rent = $2,200 × 91.7% = $2,018. Op. expenses = $2,200 × 35% = $770. Property tax (est. 1.2% rate) = $400. CF = $2,018 − $2,135 − $770 − $400 = −$1,287.
- Equity = Hₜ − Bₜ. At start: $400,000 − $328,000 = $72,000 (closing costs reduce starting equity by $8,000). After payoff, equity equals the full current house value.
- Portfolio value Vₜ includes all accumulated rent income, costs, home appreciation, equity buildup, a 5% realtor fee, and 2% closing costs deducted from day one — so the starting value is below the down payment.
What you get back
Portfolio value (Vₜ)Comprehensive net position: home appreciation (Hₜ−H₀) + all rental income − mortgage costs − expenses − 5% realtor fee − 2% closing costs + (down payment + cumulative principal paid). A 'what would I net if I sold today' figure.
Equity (Eₜ)Current home value minus outstanding loan balance (Eₜ = Hₜ − Bₜ) — shown in the Detail tab. Grows through both principal paydown and home price appreciation. After the loan is fully paid off, equity equals the full current house value.
Avg monthly cash flowMean net cash flow per month over the simulation — shown on the Summary tab.
Cash flow breakdownMonth-by-month split of ZORI income, scheduled principal, interest, property tax, and operating expenses — visible in the Detail tab.
Growth rate (CAGR)Smoothed annual growth of the portfolio value curve from purchase to the end of the horizon.
Worst drop (max drawdown)The largest peak-to-trough fall in portfolio value, typically driven by ZHVI price dips.
NOTEPortfolio value starts below the down payment because a 5% realtor fee and 2% closing costs are both deducted from day one. This is intentional — it models the full round-trip cost of owning and eventually selling. Cash flow is typically negative in early years: the mortgage and expenses exceed rental income, which is normal for leveraged real estate. Equity and home appreciation are the primary return drivers.
Why does portfolio value start below the down payment?
The simulation assumes an eventual sale and deducts both the 5% realtor fee and 2% closing costs upfront so the chart always shows net proceeds — not a gross number that flatters before costs. On a $400,000 home that's $20,000 (realtor) + $8,000 (closing) = $28,000 off the top. Add month-0 operating expenses and property tax, and the starting value is visibly below the down payment. From there it climbs as equity builds and home prices rise.
Assumptions
- 01Home value tracks the ZHVI index for the selected region — individual property appreciation will differ from the area average. If the region has no direct ZHVI coverage, values are estimated from the nearest available geography.
- 02Purchase price equals the ZHVI value for the region at the simulation start date.
- 03Closing costs are 2% of the purchase price, rolled into the loan (not drawn from the down payment).
- 04A 5% realtor fee is deducted from portfolio value throughout, modeling an eventual sale cost.
- 05Rent tracks the ZORI index for the selected region. If the region has no direct ZORI coverage, rent is estimated from the nearest available geography. For months where ZORI data is missing, rent is estimated using the ZHVI home price series for the same region — the historical rent-to-price ratio is used to derive a rent estimate, then smoothed with a Kalman filter to produce a consistent series.
- 06Vacancy is fixed at 8.3% of annual rent (roughly one month empty per year).
- 07Operating expenses are modeled at 35% of gross ZORI rent (maintenance, insurance, property management).
- 08Property tax rates come from Census ACS — effective rate = median real estate taxes paid ÷ median home value, observed annually at the state and county level. Missing years between two known values are filled by linear interpolation; if no newer data exists, the most recent rate is carried forward. Regions without their own ACS survey data (e.g. a specific ZIP or neighborhood) use the rate of the nearest available geography — county first, then state.
- 09Mortgage rate is fixed at the rate you enter — no adjustable-rate or refinancing scenarios.
- 10Extra monthly payments (recurringPayment) go entirely to principal on top of the scheduled payment, stopping once the balance reaches zero.
- 11No capital gains tax on the eventual sale is computed.
Key terms
ZHVIZillow Home Value Index — a smoothed, seasonally adjusted measure of typical home values for a given geography, used here as the purchase price and ongoing home value.
ZORIZillow Observed Rent Index — a smoothed measure of asking rents for a region, used as the gross monthly rent input.
AmortizationSpreading a fixed-rate loan into equal monthly payments. Each payment covers that month's interest on the remaining balance, with the rest reducing principal. As the balance falls, less goes to interest and more to principal.
EquityWhat you actually own in the property: current home value minus outstanding loan balance (Eₜ = Hₜ − Bₜ). Grows through both principal paydown and home price appreciation. After the loan is fully paid off, equity equals the full current home value.
Portfolio value (Vₜ)A comprehensive net-of-everything figure: home appreciation (Hₜ−H₀) + cumulative rental income − mortgage outflows − operating costs − property tax − 5% realtor fee − 2% closing costs + (down payment + cumulative principal paid). Represents what you'd net from a sale at that month.
Vacancy rateThe fraction of time a rental sits empty. Kairometric uses 8.3% (roughly one month per year), applied as a reduction to gross ZORI rent.
Operating expensesOngoing rental costs (maintenance, insurance, management), modeled at 35% of gross ZORI rent. Excludes property tax, which is tracked separately.
Realtor fee5% of the purchase price, deducted from portfolio value throughout the simulation to reflect an eventual sale cost.
Closing costs2% of the purchase price, rolled into the loan amount at purchase.
Extra monthly paymentAn optional additional payment above the scheduled mortgage, applied entirely to principal. Reduces the balance faster and shortens the effective loan term.
CAGRCompound Annual Growth Rate — a smoothed annual growth rate for the portfolio value curve over the simulation period.
Max drawdownThe worst peak-to-trough decline in portfolio value, typically driven by a dip in the ZHVI home price index.
What it is — and isn't
- ✓Home values and rent are real historical data (ZHVI and ZORI) for the selected region.
- ✓Amortization is computed precisely month by month — interest, principal, and extra payments are all exact.
- ✓Property tax uses actual regional effective rates rather than a national flat estimate.
- ✗Not a forecast — past ZHVI appreciation does not guarantee future home price growth.
- ✗ZHVI is a regional average; individual property performance can differ significantly.
- ✗No capital gains tax on the eventual property sale is modeled.
- ✗No adjustable-rate, interest-only, or refinancing scenarios — the rate is fixed for the full term.
- ✗The effective property tax rate is held at the most recent year available in the database — it does not vary if newer rate data is absent.
- ✗No modeling of rent control, lease gaps, or large one-time repair costs.
- ✗Monthly cash flows (positive or negative) are accumulated as-is into the net portfolio value — positive cash flow is not modeled as being reinvested elsewhere, and negative cash flow assumes the shortfall is covered without cost.
FAQ
How is the purchase price determined?
The ZHVI value for your selected region at the start of the simulation window becomes the purchase price. Your down payment is what you're putting in; the loan is the rest plus 2% closing costs. There is no fixed LTV ratio — the loan is simply what remains after your down payment.
Why does portfolio value start below the down payment?
A 5% realtor fee and 2% closing costs (both based on the purchase price) are deducted from portfolio value from day one, modeling the full round-trip cost of owning and eventually selling. On a $400,000 home that's $20,000 + $8,000 = $28,000. Add month-0 operating expenses and property tax, and the opening value is visibly below your down payment.
Why does equity grow even when cash flow is negative?
Equity (Eₜ = Hₜ − Bₜ) grows from two sources: principal paydown (each mortgage payment chips away at the loan balance) and home price appreciation (Hₜ rising raises equity even without extra payments). Both effects are reflected in the equity figure shown in the Detail tab. Monthly cash flow being negative or positive does not directly change equity — it affects the portfolio value Vₜ through accumulated cash flows.
What does 8.3% vacancy mean in practice?
The property is assumed to generate no rent for 8.3% of each year — roughly one month. Gross ZORI rent is multiplied by (1 − 0.083) = 91.7% to produce net rental income each month.
What does 'Extra monthly payment' do?
In the simulation form this is the 'Recurring payment' field on the Real Estate asset. Whatever amount you enter there is applied entirely to principal on top of the scheduled mortgage payment each month — it is not an additional property purchase or a separate investment. Extra principal payments reduce the loan balance faster, increase equity sooner, and shorten the effective loan term. Once the balance reaches zero, the extra payment stops.
Why is cash flow negative in early years?
At the start of a 30yr mortgage, the vast majority of each payment is interest — as little as 10–15% reduces the loan balance. Combined with operating expenses and property tax, total outflows nearly always exceed rental income in most U.S. markets. The return comes from equity and home appreciation, not monthly income.
Source series
Audit log
v2.5Jun 29 2026Equity formula updated from Eₜ = D + Pₜ to Eₜ = Hₜ − Bₜ (home value minus outstanding balance) — equity now reflects price appreciation, not just principal paydown. Portfolio value formula corrected to deduct closing costs (C = H₀ × 2%); previously they were rolled into the loan but never subtracted from net value. Worked example, legend, glossary, FAQ, and results descriptions updated throughout.
v2.4Jun 23 2026Data source details added: ZHVI/ZORI from Zillow public research data across multiple geographies; property tax from Census ACS, effective rate interpolated and propagated through the region hierarchy.
v2.3Jun 23 2026Full rewrite: narrative, worked example, glossary, FAQ aligned to actual backend logic (ZHVI/ZORI, dynamic loan, 8.3% vacancy, 2% closing, 5% realtor fee).
v2.1Mar 12 2026Vacancy raised to 8.3% (was flat 5%).
v2.0Nov 02 2025Added closing-cost modeling.
v1.7Jul 11 2025Expenses moved to 35%-of-rent rule.