Two calculations to determine if a rental property is a good investment.
Investing in real estate, particularly in rental properties, is a popular way to create passive income. However, not all rental properties are created equal. To make sure that it makes financial sense, you want to focus on two words: cash inflow. Here are a couple of things that you can do to calculate and make sure that you are making a wise financial decision.
The first thing to consider when looking at a rental property is the expenses. Apart from the mortgage payment, you need to factor in the recurring expenses that occur every month, such as property taxes and insurance. You also need to consider potential months of vacancy, where you’re going to have to carry the costs without any income coming in. Additionally, if you’re going to use a property manager, that’s going to come at a cost as well.
“The main way to determine if an investment will be a good one is to run the numbers.”
To calculate your cash flow, take your gross profit, which is the rent receipts that you receive, and subtract all your expenses. If the end result is a negative number, then that’s the property you want to walk away from. It makes no sense to own a property that you’re actually going to have to put money into every month instead of collecting profit.
If you need help assessing whether the rental property is the right deal for you, contact a professional like myself. I’m always here to help you do an analysis and let you know what the current rents in the neighborhood are and what you can expect to project going forward. It’s important to do your due diligence before buying a rental property because it can turn into a money pit if you don’t have the right guidance.
So, before jumping into the investor market as a landlord, make sure that you understand what you’re getting into. It’s not all that it’s cracked up to be sometimes. Remember, if you have any questions about rental properties or real estate in general, please feel free to reach out to me by phone or email. I would be happy to help you.
