Investing in real estate is still one of the best ways to create wealth. But as with any investment, you need to do your research to ensure you’re putting your money into the right investment. You can’t just buy any piece of real estate and expect to make money.
Investing in rental properties is a smart way to create income and grow your wealth. Choosing to invest in Texas properties is even smarter with Fort Worth, McAllen, and San Antonio, all ranking as some of the best rental markets to own in.
If you’re interested in owning a rental property, use this guide to help you evaluate a property’s potential rental value.
Start with the Basics
The first thing you need to do is research. You can use basic common sense when considering investment rental properties.
A single-family home is going to bring in rental income on the higher end. A side-by-side is the next highest amount of monthly rent. The next most profitable property are duplexes. The lowest monthly rent will be for properties that have three or four units in a single two-story building.
Estimate a Rental Price
Your next step is to estimate the potential rent price. To determine the market rate rent you can spend time researching real estate websites.
You want to make sure that you’re only looking at properties that are geographically near your property as rental rates can vary significantly from one region to the next. You also want to make sure you’re comparing similar rental properties in similar neighborhoods.
Analyze the Data
As you gather your rental data, you’ll notice that there is a wide range of rents for properties that are comparable to yours. The lowest end properties are most likely a low-quality unit that is in need of extensive work. The highest rents are for units in premium condition with plenty of amenities.
Unless your unit qualifies for an outlier position, it’s best to discard these extreme highs and lows. Only use the middle range rents to determine an average rental rate. Use this rental rate to estimate a realistic monthly rent value for your property.
Resist the urge to overestimate the quality of your rental.
Determine a Reasonable ROI
To figure out the ROI, you need to take your expected annual return and divide it by your investment. The investment number shouldn’t be estimated. This is the total amount of money you’ll have to put into owning the property. The annual return is your expected profit from renting the property.
It can be tempting to overestimate your desired profits so that your ROI is greater. You need to remain realistic so that you can get an accurate ROI. The ideal ROI can vary greatly depending on your personal goal, the market, and geographic location.
Your final Calculations
If you haven’t bought an investment rental property yet, you can estimate the value of the property before you purchase it. Start by figuring out what the potential profit of the property could be. Then decide what kind of ROI you’d like.
Divide your profit by the ROI percentage, and the resulting number is the ideal purchase price for the property. If you can’t purchase the property for that price, then it isn’t worth the investment. If you can purchase the property for less, then it may be the ideal investment for you.
Get Help From the Experts
If you’re struggling to determine the potential rental value of your real estate, then it can help to turn to the experts. We help our clients get the most out of their rental property investment.
We provide an optimized rental value for each of your properties. The insights that we provide allow you to better understand the current market conditions and what your potential monthly rental cashflow could be.
Our team can help you make the most of your investments or help you avoid a potentially bad investment through our in-depth property analysis.
Contact our office today and let us help you manage your rental property.
