If you're an investor looking for consistent income producing real estate, the best choice is a rental property.
No other type of real estate will give you regular property income. Buy-and-hold investing and house flipping require time and work investments, respectively. Rental properties, on the other hand, give you monthly funds that you can supplement your income with.
Today, we'll give you an investment property guide that tells you how to select your next endeavor. By doing a thorough rental valuation, you can find the perfect property to maximize rental income. Keep reading and we'll show you how to do it right.
Look at the Market
To make smart real estate investments, you need to understand the market you're investing in. A rental valuation will tell you more about what you'll be able to charge tenants per month, which tells you how valuable a property will be over time.
You can't perform an accurate rental valuation without looking at what similar properties are fetching on the rental market. If you've got a few investment properties in mind, look at other buildings that are comparable in size and amenities. Their rental prices will be similar to yours.
Choose a Good Location
Good locations are worth investing in. People are willing to pay more to live or operate a business in a desirable neighborhood. If the property costs a bit more as a result, it's likely still worth the investment.
Net Operating Income
For a more technical approach, you can calculate the net operating income (NOI) of the property you're investing in. To get this, you simply deduct the projected operating expenses from your gross operating income, as projected from your rental valuation.
Now, take the NOI from the first year and divide it by the property price. This is your capitalization rate - the higher the rate, the more worthwhile an investment is likely to be.
Gross Rent Multiplier
An easy way to show you how long it should take to pay off a property and start making money is the gross rent multiplier. You simply take the cost of your property and divide it by your gross rental income for the year. The number you're left with is how many years it'll take to start making income.
Capital Asset Pricing Model
The CAPM is a more complex, but more accurate way to assess a (usually commercial) property's worth as an income producing investment. It's a more fluid assessment, as it compares the risk of the investment to the rest of the market. As such, it's a model that you need to update as the market changes - find the CAPM formula here.
Income Producing Real Estate Is Available in Denver
The Denver market is full of income producing real estate. You can use any or all of these real estate strategies to get a better idea of how much ROI a property will bring and how fast.
To get a proper rental valuation done by local market experts, Laureate Ltd. can help. We're Denver's top option for property management, as well as an amazing resource for owners and investors. Contact us today to learn how we can help you capitalize on Denver's rental market.
