Think about the last time you took a math class. Did you ever ask your teacher, “when am I ever going to use this in real life?”
If you’re thinking about getting into real estate investing, you have your answer. Doing a rental analysis will require a little basic math, but it will help you figure out how much you can expect to earn in rental income.
Your rental property cash flow is one of the most important factors in determining how profitable your investment will be. That’s why a rental analysis is such a key part of real estate investing.
The article below contains a list of some of the numbers you’ll need to think about when doing your rental analysis. The tips in this article will help you realize your rental property investment ROI. Read on to learn more about calculating rental income.
Factor in the Monthly Mortgage Payment
Your monthly mortgage payment will be your biggest expense. You need to subtract the mortgage payment from any income you’re earning from rental. The best way to keep your mortgage payment low is to put down a large down payment and secure a low interest rate.
You can secure a low interest rate by improving your credit score before buying a home. The lower your monthly mortgage payment, the easier it will be to realize profits on your rental property.
Think About Your Property Taxes and Insurance
Your mortgage payment isn’t the only fee you’ll have to deal with as a rental property owner. Homeowners also have to pay for home insurance and property taxes.
Your property tax may go up if your home appreciates in value. Be sure to leave some room for increases in property taxes when doing your rental analysis. Remember to also get quotes for home insurance so you have numbers to work with.
Determine the Potential Monthly Rent
You can set a rent price for your property by comparing it to similar properties in the neighborhood. You'll be able to set higher rent prices if you live in a more desirable neighborhood.
In Denver, CO, the most desirable neighborhoods include:
- Capitol Hill
- Uptown
- Highlands
- Sloans Lake
- Baker
If you invest in a home in one of these neighborhoods, make sure you generate enough income to cover your mortgage payment, insurance, and property taxes.
It’s also important to set a rent price that will leave you with enough cash in the event that your property is vacant. Most experts recommend factoring in a 10% vacancy rate in your rental analysis.
Using this number will allow you to set the rent at a price that allows you to remain profitable even when you aren't able to find a tenant.
Reviewing the Best Tips for Doing a Rental Analysis
Using the advice in this post, you should be able to perform a rental analysis that helps you figure out if your property will be profitable. Be sure to calculate all your expenses and then determine what you’ll have to charge for rent.
If you’re interested in hiring a property management company to help you manage your investment, reach out to the experts at Laureate LTD.
