Picture a world in which you get a paycheck every month without going to a job. You get to relax. You don't work for anybody.
You simply receive passive income. This might sound like a dream, but it can be your reality with rental property investment.
If you're thinking about investing in a rental property, it's important to do a rental property evaluation to make sure it will be a good investment.
One way to do this is by conducting a rental analysis. This means figuring out how much rent you can charge for the property. Here's a step-by-step guide to help you calculate an accurate rental analysis.
Look at Similar Rental Properties
Start by researching other rental properties in the area. Look for properties that are similar to the one you're interested in.
You can find this information online or by talking to local property management companies. Pay attention to the rent they charge, the features of the properties, and where they're located.
Consider the Location
The location of a rental property is important. Consider if it's in a good neighborhood and if it's close to things like schools, stores, and jobs.
Properties in nicer areas usually cost more to rent. If the property is in a not-so-nice area, you may need to charge less rent.
Evaluate Property Features
Next, think about the features of the property itself. How many bedrooms and bathrooms does it have? Is there parking available?
Are there any extras like a pool or gym? The more attractive the features, the more rent you can charge. Be realistic about what your property has to offer and adjust your real estate analysis accordingly.
Figure Out the Costs
To get a better idea of how much money you'll make from the rental property, you need to think about the costs involved. Consider things like property taxes, insurance, maintenance, and any fees for property management. Subtract these costs from the rent you expect to charge to figure out how much money you'll make.
Calculate the Value of the Property
Rental property valuation is an important factor in determining how much rent you can charge. To figure this out, divide the money you'll make from the property (rent minus expenses) by the property's market value. This will give you a percentage called the capitalization rate or "cap rate."
Account for Vacancies
Remember that rental properties are not always occupied. People move out, and it takes time to find new tenants. You need to consider this when calculating your rental income.
Find out the average time properties in the area stay vacant, and multiply your expected rent by the percentage of time the property will likely be empty.
Compare and Adjust
Now, compare the rent you calculated with what similar properties are charging. Analyze other rental properties based on the features, location, and condition of your property.
If your property has more to offer, you might be able to charge a little more. If it's not as good as the others, you may need to lower the rent.
Rental Analysis Tips
By following these steps and considering factors like location, features, costs, and market trends, you'll be able to calculate an accurate rental analysis for your real estate rental property. This will help you determine how much rent you can charge and whether the property is a good investment.
If you need help investing in rental properties, schedule your free consultation with Laureate.
