Buying Properties for Rental Income

Choosing to invest in a rental property is a big decision. But according to the latest statistics, you’re not alone in making it. The rental market continues to hold steady as a $169 billion per year industry, and — according to a report by JP Morgan Chase — more than 20 million rental properties in the U.S. belong to “individual investment landlords”, also known as “mom and pop” landlords. What’s more, the census bureau reported that landlord income is solid. On average they’re earning $35,000 more a year than the median household income.

While timing is one factor to consider when buying a rental property, location is likely the most important. To determine if a location is right for buying a rental property, start by identifying your ideal tenant. Consider who might be looking for homes in your target neighborhoods and what are the location needs of those preferred tenants.

A property’s location will influence how much you can charge for rent. You’ll want to assess the average rent in the area to determine how much you can charge in order to achieve a good Return on Investment (ROI).

Property ownership is a big investment and responsibility. It’s important to calculate the costs and potential ROI. Income from a rental property allows you to pay down any loans from your initial investment, maintain upkeep, and hopefully, have extra left over.

But how can you determine this before buying a rental property?

There’s a simple formula for estimating if a property will be worth it. It’s called the capitalization rate (or cap rate).The cap rate is the most common metric for measuring the value of a potential real estate investment. It’s a calculation of the returns the property will produce each year, or net operating income (NOI) in relationship to its operational costs.

While there are many variables to consider when calculating the cap rate, doing so can be crucial to understanding if buying a rental property is a good investment.

At HomeVestors®, we recommend you consult with a professional financial advisor to determine if rental property ownership is a smart financial decision. They’ll also likely be in a position to factor in potential tax benefits that can add to your bottom line.

Now is a great time to become a HomeVestors® franchise owner. As a franchisee, you’ll gain qualified leads from the We Buy Ugly Houses® marketing campaign and our proprietary real estate tools and technology will help you choose rental properties that will deliver a strong ROI. Meanwhile, our powerful network of real estate professionals will provide you with the mentorship and training you need when buying rental property.