If history has taught us anything, it has taught us that the way to wealth and a secure financial future is through real estate. And if you’re in real estate or thinking about getting into real estate for business, personal, or investment opportunities, right now is a great time to get into it. Like anything, there are a variety of ways to ensure that you’re successful. One of the best ways to be successful in the real estate business is by having a rental analysis done before you invest.
What’s a Rental Analysis?
In a nutshell, a rental analysis is done to find the winners and losers when it comes to properties that have the potential to make the investor or property owner money. A rental analysis is usually performed by investors to determine if a property is worth investing in. The end-goal is to identify properties with positive cash flow, anywhere from a few hundred dollars a month to thousands of dollars in positive cash flow per month. With that said: A complete rental analysis involves at the very minimum, three things.
- Location. The first thing is to evaluate the neighborhood. As an investor, you want to look for both positive and negatives things that can affect the cash flow or profitability of the property. Properties located in an area where several properties are boarded up, and have been empty for more than six months are red flags that it may not be a good investment – unless you’re looking at it as a long-term investment, which could appreciate over time and net profitable returns in 10, 20, 30 plus years or more.
- Identify Comparable Properties. When selecting a specific property or properties to invest in, identifying comparable properties will help you as the investor determine the actual price to set for rent. Comparable properties mean finding properties near the property(s) in which you’re considering as rental investment that are the same or near the same square footage with similar amenities. Once you’ve identified comparable properties, a good idea would be to jot down the amount in rent that comparable properties are charging. This will be very important for the next step in the rental analysis process and utilizing online tools like Rent Manager or Rentometer to help with your numbers is a great idea.
- Do the Math. We get it. It’s super exciting to find a property that you can rent to others for a profit. When it comes to setting your rent price, you don’t want to set just any rate you want but use the rate you can actually get. Far too often, investors skip the step of actually doing the math.
As it is in life, success has a formula. It’s no different in real estate. There is a formula for doing a proper rental analysis, and it involves calculations to ensure that the price you set places you in the perfect position to secure renters as well as profit as much as possible. To help determine the price of your rental property, you must calculate the price per square feet of comparable properties, the adjusted price per square feet of comparable properties, and then multiply by the square feet of properties for sale. These numbers will help determine your price while ensuring that your price in not too high or too low.
Simply put: A rental analysis is by far one of the most important steps to take, if not the most important step to take prior to investing in a property that you plan to rent. However, it can also be a complicated one. But reputable companies provide free rental analysis to ensure that investors like you win in selecting the best properties for the most profit. Click the link below to get your free rental analysis today.
