Rental Rates and Rental Investment Values
If you own or are considering buying a Rental Investment property, it’s important to understand the estimated Rental Rates and fixed + variable expenses in order to determine your expected cap rates or return on your invested capital.
Determining Rental Rates
Deciding on a Rental Rate doesn’t just mean figuring out the highest possible price you could list your rental for. In our experience, increasing the rental rate to the top of the market, can also increase the number of calls or issues a tenant may complain about during the term of the lease.
e.g. If you’re paying top dollar for something, you expect an exceptional experience. If you pay a below market rent, you are likely to not complain about smaller issues since you’re paying less.
Pricing your rental should be a strategy in order to maximize your net income. The longer you own the property, the easier this becomes.
If you’re leasing your property as a vacation rental, your pricing strategy is really simple: when there are more guests coming to your area than there are vacation homes, you should be near the upper end of the pricing scale, and when there are fewer guests, you should be near the lower rates. You can often determine a nightly rate based off of what hotels are renting for per night in your area.
Not sure how much you should charge? Rent Ruby offers a free automated rental rate calculator and expected expenses and net profits.
Rental Investment Values
Owning a Rental Investment is very different from owning your own home. Why? Emotions.
Your primary residence is where your family lives and grows. The emotions involved in owning a personal residence can effect when you sell and for how much. When you buy a property for use as a Rental Investment, it’s time to think like a commercial property investor; it’s about the numbers.
There are 2 types of Rental Investments: (1) Cash Flow Rental Investment – A cash flow rental investment is a property which creates a profit every month after paying all expenses. However, it may not increase in sale value over time. (2) Equity Rental Investment – An equity rental investment is a property which may break even or cost you monthly to own, however, if you hold the property for a term you could sell for a much higher amount and “cash out” with a larger profit.
The safest rental investments offer a balance of a Cash Flow and an Equity investment.
Since determining rental rates and rental investment values is imperative to owning and managing a property investment, Rent Ruby developed an instant Rental Rate and Investment Valuation analysis system which provides you in-depth analysis of your properties current market value, estimated rent range, an in-depth investment market analysis including potential cap rate and IRR estimations, historical photos, neighborhood statistics and much more!