The real estate market is booming right now. Surely you’ve heard that it’s continuing to climb, putting more and more money into the pockets of both sellers and landlords across the United States. You might be wondering if now is the time to invest, and the answer is: absolutely! Still, it can be intimidating to know where to start, especially if you have limited knowledge of either the real estate or rental market. If that’s the case, then here’s a guide to help you invest in the right rental property and find success in the real estate market.
Table of Contents
Calculating Return on Investment
Calculating the potential return on investment (ROI) on any properties that you’re considering will give you an idea of what kind of profit you can expect to see and help you decide whether or not it’s worth investing in. Calculating your return on investment is easy. All you have to do is divide your expected net annual gain from your rental property by the initial purchase price, and this will give you the predicted ROI for your property.
For instance, if you expected to earn a net annual gain of $5,000 on a property that you purchased for $100,000, then you would expect to see a return on investment of 5%. Keep in mind that the amount you use for your expected net annual gain should take into account factors like payments from your renters, your monthly mortgage payments, utilities, and any other regular costs.
It’s important to remember that many factors could affect your return on investment, like interest rates, property taxes, and your ability to keep your rental filled. These rental property calculations are meant to give you a better idea of how much potential different rental properties have so that you can compare and find the one that you think best suits you and your goals. If you don’t see a high enough ROI, then don’t waste your time. Don’t waste your money. Don’t buy the property.
Here are some things that have the potential to affect your return on investment:
1. Your Plans for the Property
This formula for calculating the return on investment for rental properties can be used to determine the potential profits for any type of rental, but the accuracy is better for some than others. The accuracy depends primarily on the nature of the rental property. The formula can most accurately calculate the return on investment for properties like condos, apartments, or single-family homes.
With these properties, there is a solid amount of predictability, especially with the assurance of leases and rental agreements. It’s much more difficult to accurately predict the return on investment rate of Airbnb and other vacation-type rentals. This is because vacancies in these types of properties fluctuate much more than in standard rental properties, making for inconsistent profit margins.
If you want to take the route of AirBnb or alternative rental properties, it isn’t impossible to find success and get a solid return on investment, it just takes extra dedication. You have to be committed to advertising your vacation rental. Consider giving it unique characteristics so that it stands out against the competition and is less likely to waste your money by remaining vacant for long periods.
2. Location
Location is a super important factor when it comes to the success of your rental property. Your property’s location will ultimately determine the demographic that it attracts. If you purchase a rental property that’s near a local university and within proximity to the downtown bars and restaurants, then your property is likely to be a hot option for college students. If your property is nestled in a quiet neighborhood that’s close to parks and schools, then it’s likely to stand out to families. You see, while the quality of the property itself is important, the majority of people tend to care more about convenience and local amenities.
To take advantage of this, you should look for properties that are within proximity of grocery stores, fitness centers, and public transportation. Of course, you should also pay close attention to neighborhood statistics before making any final decisions. Keep in mind things like neighborhood crime rates, average household income, and average property value. All of these factors will determine your ability to find regular renters as well as the future value of your property.
3. Property Condition
Another important factor to consider when looking for the right rental property is the condition that it’s in. You should consider the fact that renters will prefer more modern properties. Additionally, properties that have been updated recently are less likely to have any unexpected repair costs. Purchasing a fully updated property is a smart move because it will allow you to get renters into the space faster, keeping it from sitting vacant and costing you money.
Read Next: HOW TO BUILD STRONG ONLINE PRESENCE FOR YOUR REAL ESTATE BUSINESS
