Tips on Investing in Rental Properties
Investors bought 22% of homes for sale in January 2022. Inventory is still low and demand is still high for real estate sales.
There’s an impact on the rental market. Since home values are high, many people are priced out of the market. They have to rent instead.
That’s driving rental demand and prices up. Investors want to take advantage of this rental market, but they want to be fair to tenants.
If you find yourself in the same situation, it helps to know how to price a rental property.
Fortunately, you’re in the perfect spot. Keep reading to learn about rental property pricing and how you can become great at real estate investing.
The Percentage Rule
Before you start real estate investing, you have to perform an assessment of the property. You need to know if you can make a profit.
Investors use a 2% rule, which says that if you can rent a property for 2% of the purchase price, it’ll generate income. Other investors set rental property pricing based on 1% or 2% of the value.
This is a general guideline, not a hard and fast rule.
You can purchase a property for $100,000 and rent it for $2,000 a month. Your property might have astronomical insurance rates, property taxes, and homeowners’ association fees.
The next thing you know, you’re not profitable.
Use the percentage rule as an estimation tool. Then calculate how much it costs to maintain and own the property. Figure out how much profit you want to make and set the rental price accordingly.
Conduct Market Research
Investors have to balance their need to generate income with what the market can bear.
You might have a property that needs to generate $3,000 a month, but the rental market for similar properties maxes out at $2,700 a month.
Look at the amenities and features of your property. Look at comparable rentals in the area and determine how much they rent for by square footage.
You can work with a property management company to provide a rental market analysis. For example, vividpropertyperth.com.au offers investors in Perth a rental property appraisal.
Diversify Investment Strategies
Once you set the price for your rental and you start to see income, you can think ahead. Should you purchase another rental property or not?
The best rental investing advice says to diversify your investments. This protects your income if the rental market drops suddenly.
Real estate investing in different cities is one way to diversify. You can have a mix of commercial and residential properties. Investing in real estate investment trusts along with rental investing is another way to diversify.
How to Price a Rental Property
There’s a lot to consider when rental investing. Setting rental property pricing so it strikes a balance between your needs and the market is a fine art.
These tips covered rental property pricing and how to protect your real estate investments.
Now that you know how to price a rental property, check out the blog for the latest real estate market news and insights.