Updated January 12, 2021
Predicting Profits From Your Investment Property
Every investment is a risk; there's never a guarantee of profit. However, some investments are riskier than others. For better or worse, profits from your investment property is one of the more difficult ones to predict.
However, its volatility does come with the potential for incredibly high profits. A survey by Better Homes and Gardens Real Estate revealed that 96% of people who have invested in real estate believe their decision helped them achieve financial success. While predicting the market is incredibly difficult, there are a few things you can do to manage better and predict profits from your investment property.
3 actions you can take to manage better and secure profits from your investment property
Research Your Neighborhood
Not all neighborhoods have the same real estate market, even if the neighborhoods are right next to each other. If you're looking to invest in property in your current neighborhood, you might be at a slight advantage for predicting the real estate market. You should have at least general knowledge about your local market. Visiting with other property investors can also help you with a baseline to start your rent calculation.
However, if you're investing in property elsewhere, make sure you take the time to calculate rent prices, use neighborhood search tools, analyze property reports, visit online listing sites like Rentometer. The more research you do, the better you'll be able to predict your profits. Local real estate agents can help you with rental comparisons as a starting point.
Know Your Property
Knowing your neighborhood is important, but knowing as much as you can about your investment property maybe even more so. How many square feet are in a single rental unit? How reliable are utilities, and how much will they cost renters? Know as much as possible about your property makes it easier to calculate rent prices that will maximize your earning potential.
Rental properties in different neighborhoods in the same town will command different rent rates, even if the unit sizes are the same. Take your amenities into consideration, along with property updates and renovations. The more amenities a property has, the more you can charge for rent.
Estimate Potential Earnings
Finally, once you have as much information as possible about your property, you can start estimating your potential earnings. Calculate rent prices that are fair for your space given the current market, and then figure out how much your rental property would be able to bring in during a given month.
Don't forget to subtract expenses, like maintenance and taxes. You'll also want to account for times when your property will be left empty, as it might take you time to find new renters at the end of someone's lease.
Estimated earnings can also help you understand if updating the property is worth the cost. If you can reasonably add an amenity, like a 1/2 bath, you could potentially increase your profit and your overall return.
Knowing just how much you can earn through your rental property can be complicated. These three steps can help you start. For more information on real estate investment; or to see what your rental may be worth with a rental rate calculator, contact Rentometer today.
This article was written by the Rentometer Content Team. The Rentometer Blog features fresh takes and insights on rental housing topics, services, and technology.