How Much Will I Make From A Rental Property

How Much Will I Make From A Rental Property

How Much Will I Make From A Rental Property?

This article looks at exactly that.

After all, investing in property is not as simple as buying a rental and putting it on the market, then waiting for the money to roll in.

It requires some careful analysis of what you could potentially be earning, any ongoing expenses and how these could change over time. 

We’ll look at how to estimate potential income from a rental property and manage it as the market changes.

How Much Will I Make From A Rental Property?

A good starting point is a rental comparison website such as Rentola where you’ll find properties everywhere from Preston to London and Aberdeen.

It’s a good resource for determining the rental value of your property and figuring out your potential return on investment going forward. 

Compare To Other Properties

One of the easiest ways to estimate the potential income return from a rental property is by comparing it to others on the market with similar characteristics.

It’s important that you focus your research on rentals in a similar location and neighborhood, with the same proximity to parks, schools and community facilities. 

When comparing one rental property with another, take into consideration the number of bedrooms, as more bedrooms usually results in a higher rental return.

Extra bathrooms and garages can also increase the potential earning income, as can the land size and any luxury facilities, such as swimming pools and spas. 

It’s also important to compare homes of a similar age and structural integrity, with those requiring maintenance or renovations considered less valuable.

While land size can also impact the asking price, most renters are looking for low-maintenance gardens, rather than a lot of space that they have to keep neat and tidy. 

When comparing two rentals, it’s important to keep in mind that no two are ever the same and different features will appeal to different renters.

While one renter may prefer lots of vegetable beds to grow their own produce, another might prefer a gravel or concrete patio for entertaining.

The comparison approach is meant only to serve as a rough idea or baseline and it is ultimately the market that will decide if your price is too high or too low. 

Use The Capital Asset Pricing Model

Once you have a rough idea of how much rental income you could be earning on your property, it’s worth using a capital asset pricing model to weigh up the risks and opportunities available.

The CAPM looks at the potential return on investment you could be earning through a rental property and compares it to other investment possibilities. 

If there are better investment opportunities with low or no risks, then it may not make sense to go ahead with a rental property.

Or, it may mean you should increase your asking price to make the risks of being a landlord worth it.

Remember, there are lots of “set and forget” ways to invest money that don’t require the time and money that property does. 

Some of the risks you need to take into consideration as a landlord include ongoing maintenance expenses, which can be particularly high with older properties.

Areas with high crime may need added safety precautions that cost significant amounts of money or the premiums on home insurance policies may be burdensome. 

When using the capital asset pricing model, all of these risks are factored into the equation to help you make an informed decision about your investment.

If at the end of the process, the ROI of a rental property comes out on top, then it’s a green light to go ahead. 

Seasonal Rental Pricing

Properties that are being rented on a long-term basis (six or 12 months) usually have a fixed weekly, fortnightly or monthly price that can only be changed once the lease comes to an end.

But if you’re investing in the short-term rental market, then pricing can fluctuate, depending on the season or even the day of the week. 

For example, many short-term rental landlords increase their nightly prices at weekends or when big events are taking place in the locality.

This is a response to the increased demand for rentals during these periods.

In the off-season, they may reduce their nightly rates to encourage guests to stay or they may offer discounts for weekly or monthly bookings. 

One of the simplest ways to determine seasonal rental pricing is to look at what other landlords are charging and price your property accordingly.

Once you’re up and running, you can always make adjustments to the pricing based on how popular your rental is and the ongoing costs of maintaining it. 

While landlords are ultimately in charge of setting property prices, the market controls whether or not the pricing is successful.

The demand for rentals at any given point in time has a big impact on pricing and is something that may fluctuate between seasons and years.

That’s why rental properties can be a successful way of making money, but not always.