Buying property is a smart move, but will it have a reasonable return on your investment. Here is a quick guide on how to calculate ROI on rental property.
Are you worried about the ROI on your rental property?
Property ownership is a big responsibility and a huge financial risk. When you're planning to rent it out, you need to do some research to find out every detail about the property, the rental market, and anything that'll indicate your ROI. If you can't be sure that your rental is actually generating income, then what's the point of having one?
Today, we're going to show you how to calculate ROI on a rental property so that you can keep tabs on it. With the right property manager involved, you can make sure your investment keeps on giving.
What Comes Into Play?
Like other investments, rental properties have a lot of financial comings and goings. Sure, you collect the rent from your tenant every month and you likely pay your mortgage every month, but there's so much more involved.
Among other things, you have to account for the cost of the monthly utilities (electricity, water, gas), and any maintenance costs (fixing things, mowing the lawn, cleaning the gutters).
To have a high ROI, you have to be in the right rental market, but you also need a well-maintained property and a great management strategy. If your place is desirable to tenants, then you can charge more rent and thus, see a greater ROI.
The best place to start is by calculating your current ROI and adjusting what you can to improve it immediately.
How to Calculate ROI on a Rental Property
Calculating ROI is actually quite easy. Here's how to do it:
- Add up your rental income to date
- Subtract all of the costs that you've incurred during the course of owning the property (cost of investment) from the rental income — this is your cash flow.
- Add your equity build to the cash flow — this will be your net income
- Divide your net income from the cost of investment to get your ROI
It's a simple formula, but you really have to be able to keep track of your expenses to get an accurate depiction of your cost of investment. So, is your ROI satisfactory?
Are You Satisfied With Your ROI?
Now that you understand how to calculate ROI on a rental property, you can decide if you're satisfied with what you've got. Your ROI has a lot to do with the housing/rental market that you've bought into, but there are things you can do to improve it.
One of those things is hiring a quality property manager to look after all aspects of your investment. At Clockwork, we can handle leasing, management, accounting, maintenance, and inspections so you don't have to. With us at the helm, you can be sure your property is as valuable as it can possibly be.
When you give great service, your property will attract the right kind of renters and you'll see the ROI on your investment skyrocket. Come back and visit our blog again to read more about owning and managing rental properties.