How to Determine the Best Price to Pay for a Rental Property

Most investors who would like to be landlords look to buy investment properties by looking at the net roi. There are faster and easier methods to get the same result and automatically have a substantial return in the investment.

Let's first say there's 2 sources of income from rentals that investors should be taking a look at - the multi-family conventional rentals and single houses (SFHs). The SFHs historically weren't designed to be rentals however the condition from the real estate market and the economic conditions in certain parts with the country dictate that SFHs are viable rental properties.

The good thing about SFHs over multi-family properties may be the expected appreciation in value in years in the future. So, apart from the rental income to cover a home financing, the dog owner could most likely receive a positive income through the rental income and acquire some tax benefits.

Multi-family properties will forever trade based on net rental income to the dog owner. The net income is simply the gross rental income for that year less any and all expenses to derive the volume of cash remaining to the master. These expenses include, but are not limited to: mortgage repayments, property taxes, vacancy (non-income), maintenance, property management, and utilities otherwise paid by tenants.

Historically, a guideline for pricing rental income properties was that certain percent per month with the mortgage or final cost yielded the property owner approximately 10% return. It was then around the master to carefully control his costs to have a reasonable return on his invested money. property management richmond -of-thumb was later raised as to what became called the "2% Rule". But rising property taxes costs have finally inflated the ratio to three percent (3%).

To exemplify these basic guidelines, let's look at what these percentages mean:

1. The 1% Rule signifies that with a $100,000 final cost, the master should receive at the very least $1,000 per month rental income.

2. The 2% Rule ensures that on a $100,000 final cost, the property owner should receive at the very least $2,000 monthly rental income.

3. The 3% Rule signifies that over a $100,000 purchase price, the dog owner should receive at the very least $3,000 per month rental income.

While people might claim that $3,000 per month rental income on the $100,000 property is impossible, it isn't so we are buying tri-plexes and quad-plexes at these levels on the regular basis. A SFH that costs $100,000 might generate $1,250 a month rent so the investor must decide about his final exit strategy - whether or not to get yourself a cashflow and accumulate income properties or go for the appreciation when the market returns to former heights.

Usually, the road that does the most effective for investors is usually to do a minimum of one SFH in each and every three rental properties that the investor accumulates. In addition, it is rather useful to establish a high cashflow by wholesaling properties the investor doesn't want to maintain. This gives the investor "chunks of cash" short-term (wholesaling), steady income monthly (rentals) and builds a pipeline of SFHs to be sold in the years in the future.