It is estimated that 43.3 million households are now up for rent in the US. As a rental property homeowner, you will know that a vacant home is lost income. So how can you increase occupancy and get the best income?
One way is by knowing the right market value, though getting it accurate takes hard work. Read on as we discuss how to get the market value of a property and calculate rental income.
Determining the Market Value of a Property
The first step is to determine the property value. While this won't help you calculate rental amounts, the value of a property can help determine if you are getting a good return on investment or if you should consider selling.
Check the local area for houses of a similar size and features. Real estate agents will have a better idea of what this type of property currently sells for.
You are trying to find out what they are selling for, not what they are posted as. Some properties may sit around on the market because of overpricing. In the right climate, some may even go for more.
Online tools can help with this but they won't tell you the final sale price. Keep a record of properties online, and when they do sell, you can estimate that they sold for somewhere in the region of the asking price.
Making a Rent Estimate
The easiest way to decide how much rent to charge is to check properties in the local area. Once again, you are aiming for ones that are similar in size, have similar features, and are in the same area as your property.
From this, you can ascertain a fair rental amount. Take into consideration supply and demand. If there is a glut of properties on the market not being rented out, lowering your cost could help occupancy.
Calculating Return on Investment
Now that you know the amount you will charge, you can begin to calculate the return on investment. Total up the annual costs, including any HOA fees, insurance, or maintenance.
Deduct this from the amount you will receive in rent per year to get an idea of your annual return on investment. This is known as the gross rent multiplier approach, and though there are other methods, it gives you a fair assessment quickly.
What Is a Good Rental Return on Investment?
Take your net annual income. Divide it by the initial investment and transfer this to a percentage amount. Anywhere between 4 and 10% is a reasonable return on investment.
If you get something over 10%, then you have made a fantastic deal. Anything under 4% is not worth the investment unless other factors indicate it may be in the future. Compare this against the property value and you can think about selling or renting out.
Managing Your Property
If you decide the market value of a property and think it is worth renting, you then just need to find tenants. This is a whole new adventure and should be done properly. The wrong tenant may cost even more money and time.
Alternatively, get your property managed professionally. Kansas City Property Management has everything to get the most out of your investments, giving you peace of mind. Contact one of our representatives and let us manage your property starting today.