One of the main questions that every new investor should ask themselves is, “What characteristics make a particular property a worthwhile investment?” In most cases, the answer given by new investors is a simple one – they do not want to lose their investment.
Naturally, they want it to be worth more in a few years than the amount they invest. While these are all laudable goals, there is no amount of gazing into the proverbial crystal ball that can guarantee they will be achieved. The best bet for every investor is to maintain some perspective about the entire process.
One of the first things to think about is the amount of profit you would require each month from your rental property investment before you would consider the investment a success. Some might cite an amount as low as $100, while others would look for a return of $500 or more. That answer helps you to determine how long you need to hold the property to realize your desired return on the investment – a couple years, or more? With the current rent-friendly economy, investors are finding that profits of $300-400 a month are very feasible, with calculations based on the amount of collectible rent minus the costs of the property.
When you attempt to calculate the profitability of your investment property, don’t forget to include all of your costs. You should include expenses like taxes, homeowner’s dues, repair costs, and the principal and interest for the financed property. In addition, it is important to factor in the cost of any manager’s salary unless you plan to answer maintenance calls at 4 in the morning. Most investors prefer to hire a building superintendent to take those calls and perform the necessary maintenance.
In other words, calculating whether you will have a good investment with a certain property requires you to find out what the market can bear for rental charges, and then weighing that against the amount of your investment purchase and repairs.
Of course, you want to ensure that you do not set your rental cost too high, or you’ll have an empty unit. Obviously, empty rental spaces earn no income. After calculating the costs and benefits for a given property, you should only buy if the income to be had outweighs the expenses. If it does, secure your financing, decide your spending limit, and go get your investment property!