At BiggerPockets, we understand investing in a rental property is a big, important decision. There are a lot of factors that go into deciding if a rental property is the right real estate deal for you. With the BiggerPockets Rental Property Calculator, our users are able to determine how the property would cash flow—the optimal way to help users assess if the property is the right addition to a real estate portfolio. If you are new to real estate investing and aren’t sure what you should consider when choosing a rental property, we encourage you to read the information below.
Rental Property as a Form of Income
A rental property investment is a property that is typically bought, held, and leased out to tenants with the intention of generating cash flow. The type of property can range from a single family home to a duplex to an apartment building. When considering a rental property, you will want to make sure that it is a property that will cash flow based on the financial analysis that is conducted prior to purchase. The rental property calculator above can help you determine if a specific property is a smart investment. Real estate investors can earn income from rental properties in a couple different ways—the most common being collecting rent from tenants. Typical rental properties will cash flow monthly based on the rent collected from tenants, which is a passive form of income for property owners. In addition to that, the property may build equity over time, from which the owner will profit upon selling it.
Responsibilities of Being a Landlord
While it is great to earn passive income from a rental property, it’s important to consider the responsibilities of such a venture before diving in. Here are some of the responsibilities you will have to undertake as a rental property owner/landlord:
- Property Management: The owner is responsible for repairs, general upkeep, renovations, and anything else that comes with keeping the property desirable and rentable.
- Finding/Screening Tenants: The owner is also responsible for finding and screening tenants to fill the home/apartments. After the tenants are moved in, there is also collecting rent, managing repairs, etc.
- Administrative Work: This will include doing paperwork, collecting rent, paying bills, filing taxes, budgeting, and all other financial tasks associated with owning a long-term rental property.
Keep in mind that while a property owner is responsible for these tasks, it doesn’t mean that they have to be handled by the owner. Most rental property owners will hire a property management company to handle these things for them. To find property management companies in your area, take advantage of our company directory.
Return on Investment aka Cash Flow
If a buyer is purchasing a rental property with a loan, the property should be examined closely to determine the return on investment as an indicator of how it will cash flow. Otherwise known as cash-on-cash return, this is determined by looking at what income is left over after the costs of the property have been taken into account. This includes mortgage, utilities that are included, property tax, etc. Sustainable rental properties should typically have an increase in this cash flow year over year, considering the mortgage will stay the same and the rental income will likely increase.
Other Helpful Calculators
If you are looking into other types of real estate investments and aren’t considering a buy and hold property,
then you might find the following calculators helpful in your real estate investing journey:
Books On Rental Properties
Interested in learning about making the biggest profit on your rental properties? Read more about the process from the rental property experts!