{"id":163641,"date":"2023-12-23T14:09:25","date_gmt":"2023-12-23T21:09:25","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=163641"},"modified":"2024-02-29T17:20:54","modified_gmt":"2024-03-01T00:20:54","slug":"good-roi-on-rental-property","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/good-roi-on-rental-property","title":{"rendered":"What Is a Good ROI on Rental Property?"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC8561334064\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p>When you buy a rental property, you do so with one goal in mind: to generate a positive return on investment (<a href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-roi-in-real-estate\" target=\"_blank\" rel=\"noreferrer noopener\">ROI<\/a>).<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">So, What Is a Good ROI on Rental Property?<\/h2>\n\n\n\n<p>A good ROI on rental property typically ranges from 6% to 10%, although this can vary with location, property type, and market conditions. In some areas, ROIs over 12% are possible, while in expensive urban locations, a 4% to 6% ROI may still be favorable.<\/p>\n\n\n\n<p>Now, let\u2019s examine the finer points associated with rental property ROI.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How ROI on Rental Property Is Calculated<\/h2>\n\n\n\n<p><a href=\"https:\/\/www.biggerpockets.com\/blog\/how-to-calculate-roi-on-a-rental-property\" target=\"_blank\" rel=\"noreferrer noopener\">ROI on rental property is calculated<\/a> by dividing annual rental income by the total investment cost, providing a percentage that reflects the property&#8217;s profitability. This percentage provides a clear understanding of how profitable your property is (or isn\u2019t).<\/p>\n\n\n\n<p>Here\u2019s an example to illustrate how ROI is calculated for rental property. Suppose you&#8217;ve purchased a rental property for a total investment of $200,000, including the purchase price and renovations. In a year, you earn $18,000 in rental income from your property.&nbsp;<\/p>\n\n\n\n<p>To calculate the ROI, divide the annual rental income ($18,000) by your total investment cost ($200,000). This <a href=\"https:\/\/www.biggerpockets.com\/rental-property-calculator\" target=\"_blank\" rel=\"noreferrer noopener\">calculation<\/a> gives you 0.09, or 9%, which is the ROI.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Factors Impacting ROI on Rental Property<\/h2>\n\n\n\n<p>There\u2019s no shortage of factors impacting ROI in rental property. Here are the most important ones to consider:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Location:<\/strong> <a href=\"https:\/\/www.biggerpockets.com\/blog\/breaking-down-the-location-location-location-principle-in-real-estate\" target=\"_blank\" rel=\"noreferrer noopener\">The geographical area where the property is located<\/a> greatly impacts its rental demand, property values, and potential rental income.<\/li>\n\n\n\n<li><strong>Property condition: <\/strong>Well-maintained or newly renovated properties generally yield higher rental incomes and require less maintenance costs, positively affecting ROI.<\/li>\n\n\n\n<li><strong>Market trends:<\/strong> Real estate market conditions, including housing demand, rent prices, and economic factors, play a role in determining ROI.<\/li>\n\n\n\n<li><strong>Financing costs:<\/strong> The terms of your mortgage, including interest rates and loan duration, influence your overall investment cost and ROI.<\/li>\n\n\n\n<li><strong>Operational expenses:<\/strong> Costs such as property management, maintenance, insurance, and taxes directly affect the net income from the property.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Why Is 6% Considered a \u201cGood\u201d ROI on Rental Property?<\/h2>\n\n\n\n<p>When it comes to rental property, 6% ROI is commonly regarded as &#8220;good&#8221; due to several factors and general trends in real estate returns. This benchmark is shaped by these details.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Market comparisons<\/h3>\n\n\n\n<p>Historically, the average ROI for real estate investments hovers around the 6% mark. This figure is derived from long-term data, making it a reliable baseline for comparison.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Balancing risk and reward<\/h3>\n\n\n\n<p>A 6% ROI strikes a balance between risk and return. Higher ROIs might be attainable, but typically come with increased risk, such as buying in less-stable markets or purchasing properties requiring substantial improvement. Conversely, lower-risk investments often yield returns below 6%.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Comparison with other investments<\/h3>\n\n\n\n<p><a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-vs-stocks\" target=\"_blank\" rel=\"noreferrer noopener\">When compared to other forms of investments like stocks or bonds<\/a>, a 6% ROI in real estate is competitive, especially when considering the added benefits of property ownership, such as potential appreciation and tax advantages.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Inflation and economic factors<\/h3>\n\n\n\n<p>The 6% figure also takes into account broader economic factors like inflation. It represents a return that not only keeps pace with inflation but also offers real growth in investment value.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Local market variances<\/h3>\n\n\n\n<p>While 6% is a general benchmark, local market conditions can affect what\u2019s a \u201cgood\u201d ROI.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Quick Tips to Improve ROI on Your Rental Property<\/h2>\n\n\n\n<p>Improving the ROI of your rental property involves strategic upgrades and efficient management. Here are some tips you can quickly employ:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Optimize rental pricing:<\/strong> Regularly assess the local rental market to ensure your <a href=\"https:\/\/www.biggerpockets.com\/blog\/how-much-to-charge-for-rent\" target=\"_blank\" rel=\"noreferrer noopener\">rental pricing<\/a> is competitive, yet maximizes income. Avoid overpricing, which can lead to long-term vacancies.<\/li>\n\n\n\n<li><strong>Enhance property appeal: <\/strong>Simple aesthetic improvements, like fresh paint or updated landscaping, can increase the property&#8217;s attractiveness and justify a higher rent.<\/li>\n\n\n\n<li><strong>Reduce operating expenses: <\/strong>Audit and minimize ongoing expenses such as utilities, maintenance, and property management fees to increase net income.<\/li>\n\n\n\n<li><strong>Effective marketing:<\/strong> Utilize various marketing channels, with an emphasis on online platforms, to reach a large audience and subsequently reduce vacancy periods.<\/li>\n\n\n\n<li><strong>Regular maintenance:<\/strong> Proactively maintaining the property prevents costly repairs in the long run and keeps tenants satisfied, reducing turnover rates.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Final Thoughts<\/h2>\n\n\n\n<p>Now that we\u2019ve answered the question \u201cWhat is a good ROI on rental property,\u201d you have something to strive for. If your return is falling short of the 6% benchmark, implement the guidance and tips outlined here today.<\/p>\n\n\n\n<div id=\"hero-block_62ee867235a1c\" class=\"first:mt-0 hero-block py-4    has-background has-slate-300-background-color has-text-color has-slate-800-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-2\/3 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-slate-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Find financial freedom through rentals<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px\">If you\u2019re considering using rental properties to build wealth, this book is a must-read. With nearly 400 pages of in-depth advice for building wealth through rental properties,&nbsp;<a class=\"rank-math-link\" href=\"https:\/\/store.biggerpockets.com\/products\/rental-property-investing?utm_source=blog&amp;utm_medium=blog%20banner\" target=\"_blank\"><em>The Book on Rental Property Investing<\/em><\/a>&nbsp;imparts the practical and exciting strategies that investors use to build cash flow and wealth.<\/p>\n\n\n\n<div id=button-custom-event-block_641384b1eb1d8 class='button-custom-event'>\n      <a\n    href=\"https:\/\/store.biggerpockets.com\/products\/rental-property-investing?utm_source=blog&#038;utm_medium=marketing_block\"\n        x-on:click=\"window.analytics.track('Blog Block | Publishing: Rental Property Investing', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/good-roi-on-rental-property',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Get Yours Now<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/3 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing.jpeg\" alt=\"\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>A good ROI on rental property typically ranges from 6% to 10%, although this can vary with location, property type, and market conditions. In some areas, ROIs over 12% are possible, while in expensive urban locations, a 4% to 6% ROI may still be favorable.<\/p>\n","protected":false},"author":613667,"featured_media":163643,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7389,7119],"tags":[],"class_list":["post-163641","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-analysis","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/163641","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613667"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=163641"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/163641\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/163643"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=163641"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=163641"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=163641"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}