One Percent
When you buy an investment property, remember that the rule is charge the 1% of the overall purchase price of that property for the rent per month. This means, if you bought a house for $150,000, you must lease it for $1,500 a month. When you buy a more expensive house, this does not mean you must lease it for more expensive price as well, because there are not much people who will be renting expensive houses. The rent for a more expensive house must be 0.8% to 1%.
Rent Code Expenses
After determining the investment and the rent price, you must then look for the repair, upgrades and other expenses. You need to make your investment property good enough for renting. You must pass the rent code requirements of your state. There are different rent codes per state, you must know the rent code in the state where you are in to determine the other expenses needed for that property.
Mortgage Packages
After knowing the additional expenses, you must then check the available property investment mortgage packages from different mortgage companies. This way, you will know how much you have to invest and how much you must earn to pay the monthly mortgage for the house. Most mortgage packages for investment properties will be needing a bigger down payment at about 25%. It will also be having a 0.5% to 1% interest rate. This is because mortgage companies consider investment properties as bigger risk. You must also know how much you will be paying every month for the investment property.
Cash Flow
determine the cash flow by summarizing the entire costs of the property such as the rent code expenses, mortgage, down payments, tax and other management company fees. Then compute how much you will be earning a month with the rent you will get with the property. If the outcome is negative, then don’t buy the property. But if the outcome is positive and good, then by all means buy the property.
Overall Percentage
If your property has a positive cash flow, then you must next determine the overall percentage of your investment. You must base it on the money you put in the property. You can look at the property as a stock or bond where you can gain income through dividends or yields. There are different ways to earn with an investment property. You can earn through rent, principal accrual, depreciation of asset and tax deduction benefits. The basic way of earning is the rental and the principal accrual. Know the principal and the interest of your monthly mortgage payment. Add the principal portion and the rental income. After that, divide the sum of the rental income and the principal amount for a year by the all the money you have invested in the property. This is the overall yearly percentage return of your investment property.