There are hundreds of thousands of people working in real estate every year, meaning those working with rental properties need to find good investments. But it's not just about finding properties but analyzing their worth.
But how do you analyze your rental property investment? What metrics should you keep track of to know if you're on the right track?
That's what we're here to look at today. Read on to find out more about rental property management and how you can analyze your property investment options.
How Can Properties Make You Money?
Let's start with the basics. To understand how to analyze your investments you need to know how any property you invest in can make money at all.
This comes in two ways: cash flow and equity. As the value of your properties increases, your equity rises.
The low-hanging fruit between the two is the cash flow, which makes you money in the relatively short term. However, keeping an eye on your equity is also crucial to analyze your long-term success.
Just keep in mind that your cash flow is the differentiator between making one investment better than the other.
Analyzing Cash Flow
Now that we're on the topic, let's look at how you can analyze cash flow. Doing so is a crucial part of your overall analysis.
Calculating your cash flow can be complicated in and of itself. As such, here are a few key factors to account for:
- The utilities you pay on behalf of the tenant
- Homeowner's association fees
- Expenses like lawn maintenance or anything else that doesn't go under utilities
- Maintenance for any issues your property experiences
- Vacancy for when you don't have a tenant lined up
Once you take account of all of these costs, you can subtract them from your monthly rent to get a ballpark figure of your monthly cash flow. Keep in mind that these costs can vary from month to month.
Other Key Analysis Metrics
There are also other metrics you should keep an eye on when analyzing your rental property investment. For example, property taxes can be crucial.
Some jurisdictions levy higher taxes for those investing in real estate property. This could seriously affect your monthly cash flow or even long-term financial goals.
Another key analysis metric is cash-on-cash return. You can find this by dividing your monthly cash flow by the amount of money you invested in the property.
Cash-on-cash return is a great metric for analyzing the difference between two investments with relatively the same price. Which one will yield a higher percentage of income when compared to the cost?
Cap rates are also good to know if you're a real estate investor. It's the annual cash flow of your property divided by acquisition cost.
The higher your cap rate, the better. It's also a commonly used term in the real estate industry so knowing your cap rates is beneficial when communicating with clients.
Rental Property Investment Analysis for You
Analyzing your rental property investment can be confusing, but not out of your control. Use this guide to help you get a good sense of your investment numbers today!
Looking for property management services in Fort Lauderdale, Florida? Contact us today and we can get you started on a solution right away!