One of the biggest benefits of being a home owner is that you no longer have to pay rent. Now you have the ability to rent out your property to others and collect rent. So naturally one aspect that real estate investors look for in properties is the potential rental return. Rental return is exactly what it sounds like; the amount of rent your property generates. Real Estate investors buy properties with one goal in mind, “Make a profit”. And one of the easiest ways to do this is through renting properties. If you haven’t looked into rental return as a real estate investor, you’re missing out on a huge profit opportunity.
Rental returns can be very beneficial to investors who buy multiple properties and also to people who have a couple of properties to build credit so they just rent out one of the properties. A solid rental return can potentially cover the cost of your mortgage. Home prices have gone down significantly over the past few years, allowing you to get great deals for properties. On the other side, rental prices are going up which also is on your side. A lot of real estate investors are taking advantage of this opportunity and renting out properties for a lot more than their mortgage payments. Some are even covering the cost of minor repairs and utilities as well! Pick the right area and you could make a profit off of your property every month, with little to no effort.
How to determine Potential Rental Return
If you’re in the process of acquiring properties with the goal of renting them out to tenants, it’s important to know what your rental return will be. The easiest way to get an idea of what your potential return will be for an investment is to see what other homes in the area are renting for. Look for properties that are similar to yours (number of rooms, bathrooms, price, and quality) in the same neighborhood. This will give you a good idea of what you can expect to pull in for rent. If you notice your property is nicer than all the comparables, you may be able to get a little more rent.
How to calculate rental yield
You’re probably wondering; what is rental yield? Rental yield is the annual rental yield from a property. Calculating rental yield only requires a simple formula. Multiply the monthly rent times 12 months. Divide that by the purchase price of the property and multiply by 100. The higher the rental yield the better. To calculate the net rental yield you’ll have to subtract the cost of maintenance, repairs, and other expenses related to the rental property. There are plenty of rental yield calculators available online if you want to avoid the math. Knowing your rental yield will help you to determine the property is actually worth renting or not, and can also help you adjust the amount of rent you charge to get a desired rental yield. Rental return can be a great benefit of investing in real estate. It’s important to know why it’s important and how figuring out your rental yield can help you make decisions. Rental return is often a key feature investors and casual home owners look for when buying properties. So the next time you’re looking for a property, be sure to keep the possible rental return in mind.