Investing in property can be a tricky business as you need to ensure that the residence you’re buying has a good resale and rent value. This can be determined by location, quality tenants, and a number of other factors. If all of this sounds overly complicated to you, make sure to read through this quick guide that breaks down the value of property management companies and lets you make better financial decisions.
Here are three pro tips you can use:
Pro Tip #1: Calculate Rent Based on Comparable Sales in the Area
Before expecting to make any returns on a property, you need to have the price range validated by the volume and prices of houses that are being sold or rented out nearby. Avoid looking at national prices, just focus on the specific neighborhood where the sale is being made.
If you’re planning to sell or rent out a house immediately as a secondary property, this step is crucial to learning your margin of profit. However, if you’re a homeowner looking to buy your first residence or flipping it, you need to consider the location of the area as well as the following questions:
- Are there hypermarkets nearby?
- Are there schools nearby?
- Is it conveniently located?
- Is it in a good neighborhood?
All of these factors will increase resale and rental value, even if the property might be more expensive for you initially.
Pro Tip #2: Calculate the Rate of Investment (ROI)
Once the ideal location has been established, a better way to calculate your profits from rental properties is with an ROI. Below is a simple list that explains the basic concept of the ROI:
- 1. You buy a house for $400,000.
- 2. You rent out the property for $3,500/month.
- 3. The upkeep of the house costs you $400/month.
- 4. The ROI is the percentage of your profit per year, and it’s essentially a percentage of your earnings. For example, let’s say your annual income is $3,500 x 12 – $400 x 12 = $37,200. Therefore, your ROI per year is 37,200/400,000 = 0.093 or 9.3%.
It is essential to use the ROI to get an estimate of the number of years it will take to earn back all the money spent on the property and start making a profit. When you have a couple of houses to buy in mind, you should use ROI to compare them against each other to find the best bang for your buck.
Pro Tip #3 : Compare the Price Against the Quality
To maximize your profits, you need to be able to know whether a property is a good investment or not. Namely, is the price demanded for the house on par with the quality? Do excessive renovations need to be made to a house?
If you overpaid for a rental and end up splurging on renovations to make it attractive to prospective clients, the only way to recoup your losses is by charging your potential renters more. This drives away clients and guarantees loss. Always get a second opinion from an unbiased property manager before making a purchase.
Live a Stress-Free Life by Hiring a Property Management Company
If you have one or multiple properties that you want to rent out, use Premier Business Investments for a smoother ride. Our company has the marketing experience and resources to handle any matters related to your property from advertising to prospective clients to maintaining a property in a good condition. For more information, simply contact us today and get ready to maximize your property investments.