The calculations determine if a rental property is a good investment.
Today we're talking about how to calculate the numbers for a rental income property. If you're interested in investing in real estate to make a profit, you need to understand these figures.
The first step in calculating your rental income is understanding your average monthly rent. This can be done by researching comparable properties.
Next, you'll want to understand all the expenses of managing and owning the property. This could be the mortgage payment, insurance, property taxes, maintenance, and repairs. In addition to that, you'll want to factor in what is called “vacancy loss”, which is the time that you're not collecting rent on the property and the loss of income that is associated with that time. Typically, we like to budget about 5% to 10% for vacancy loss.
"If you're interested in investing in real estate, you need to understand these figures."
Now, once you have all of your income and expenses calculated, you simply subtract your expenses from your income, and you come up with what is called your net operating income. This is the profit that you will make from owning this property.
Finally, you should consider the long-term potential of this rental property. Will the property increase in value over time? What are the factors of the neighborhood in which the property is located? These factors will help you determine the overall success of owning the property and whether or not you should invest in it.
Of course, it's always important to consult with a local real estate expert in that market area to ensure your success. If you have any questions about this topic or real estate in general, please don’t hesitate to call or email. I would be happy to serve as a resource for all of your real estate needs.
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