The formula of buying rental property
(ROI)=Return On Investment
Property must generate at least a 15% ROI, cash on cash. That means the rent minus the debt (if mortgaged) and expenses must equal 15% or more. For example, a $20K down payment would have to yield at LEAST a yearly cash flow of $3,000.
So to figure that in simple math is; divide $3000 into $20,000 = 15% So your expenses would include your down payment in this example plus holding cost. Holding cost is repairs, upkeep, taxes, etc.
How to Determine the Rental Cost of a Property
Setting the right rent for your investment property involves more than simply trying to make a profit. Tenants have so many choices when it comes to rental properties, so you have to make yours stand out. This means setting the right rental price that attracts high-quality tenants and reflects the positive attributes of your property. With a little research, math and market know-how, you can determine the appropriate rental price for your investment property.
You will find several methods to determine the right rent rate which include;
1) Using your home’s value ($90,000 x 1.1%) =$990
2) Working with a Realtor or Property manager to figure it out
3) Researching comparable properties in your area
Out of the 3 options I always go with number (3) as that will tell a realistic rent rate. I would suggest even viewing at least 2 or 3 comparable properties inside as well. My suggestion is to go on line and see the inside photos as well as the outside. Then depending on the condition, appearance and location you can adjust your price accordingly. If you offer more amenities like, a pool, washer/dryer, and other appliances this would be good examples of asking a little more for your place.
The easiest way for me to determine a good rental property is quite simple. My question to myself is; after all my expenses what is left in my net profit each month? The answer has to be at least $150+ per month. If not, it’s not worth my time or effort.
llI know some investor/landlords will disagree with me especially in New York where they do back flips for being able to get 6% (ROI).
A lot of landlord investors make the huge mistake of buying in their own backyard just for the conveniences. If they would be open minded to partnering with out of state investors like myself I can not only generate guaranteed higher rates of returns, but also take away all their headaches as we.