Crunching the Figures to Determine Your Rental Property Profits
If you are considering investing in real estate property, you may be on the fence because you are not sure if the potential profit will be worth the hassle. While there are no guarantees about how much you will earn from your rental property, there are a few factors that you can consider when determining how much you are likely to profit from purchasing a rental property. To that end, here is a look at the primary factors that will determine the profit you earn from your property.
The Initial Cost
Obviously, the initial investment price is going to impact your profits. While it may seem like the goal is to spend as little as possible on a rental property in order to increase your profits, this is not always the best route. After all, you are less likely to find a tenant if the property is located in an undesirable neighborhood. Similarly, you will not be able to command as much in rent if the property has very little to offer to the renter. Therefore, while you will want to keep the costs down as little as possible, making a greater investment in a nice property or on making improvements may help to increase your future profits. Nonetheless, simple math will tell you that you are not going to make as much of a profit if you have invested a significant amount of money in the property.
The market’s rental rates will also have an impact on much you can expect to earn from your rental property. After identifying those markets that are affordable to you and your budget, you should begin to collect data on the rental rates within each of those markets. The higher the rental rates are within the market, the more profit you can expect to earn. Real estate agents and property management companies in your area should be able to help you obtain more information about rental rates.
Insurance and Taxes
The costs associated with insurance and taxes can vary significantly from one area to the next. Therefore, before making a purchase, you should investigate how much you can expect to pay to insure the home while also looking into all applicable state and local taxes.
Maintenance Costs and Utilities
The costs of maintaining the property and providing utilities can also vary greatly from one property to the next. An older home, for example, may be available at a lower cost, but may also require more work in maintaining and updating its systems. In addition, it may not be as energy-efficient as a newer home with newer windows. Be sure to look into the typical costs associated with utilities while also considering the likelihood of needing to pay certain maintenance costs on a regular basis.
Property Management Fees
Unless you plan to do all of the work associated with maintaining your property and collecting from tenants, you will need to hire a property management company to handle it for you. Find out how much this will cost as you calculate the figures to determine the profits you can expect to earn from your property.