| The key to creating a successful real estate | | | | of costs to consider. While it's impossible to know |
| rental business is making sure your net rental | | | | what exactly is going to break down a good rule |
| income is positive. In order to do this, you must | | | | of thumb is to set aside 1% of the properties |
| properly research the costs of owning property | | | | value every year for repairs, maintenance and |
| compared to the cash inflows you receive. You | | | | cleaning. |
| must also take into account the many different | | | | Finally, make sure to factor in any costs |
| problems and unique situations that may present | | | | associated with advertising or acquiring tenants. |
| themselves, and be prepared for them. | | | | Newspaper and online ads, signs, credit reports, |
| If you're not properly prepared you could find | | | | and back ground checks all factor into this. |
| yourself with negative net rental income, which will | | | | Income |
| chip away at your savings or other sources of | | | | Now that we've figured out what we're sending |
| income. In order to avoid this, let's break down | | | | out, let's look at what is coming in for our net |
| the costs, income and other things you need to | | | | rental income equation. |
| know about in order to make a healthy return on | | | | Rent is obviously the main source of income. |
| your rental property. | | | | Make sure the rent you are charging is in line with |
| Costs | | | | the market and also enough to cover your costs. |
| Your biggest cost for your rental property is | | | | Also make sure you are accounting for vacancy |
| going to be the mortgage. Few people have the | | | | in your property. A good rule of thumb is to |
| money to buy a piece of property outright. Even | | | | expect that your property will be vacant 7% of |
| those who do are better off using the leverage | | | | the year. |
| mortgages provide to own more property. For | | | | Don't forget about additional sources of income |
| example, instead of putting $100,000 down on | | | | that can offset some of the costs. Application |
| one house you could put down $20,000 on five | | | | fees, late fees and security deposits can all be |
| houses. | | | | used to cover some of the above expenditures. |
| Research the market and find out comparable | | | | Make sure you thoroughly research the rental |
| sales prices to insure you are paying a price in line | | | | market for unique situations that may effect this |
| with the market. Make sure to calculate in any | | | | calculation. For example, if every land lord in town |
| closing costs into your calculations. | | | | pays for heat or other utilities you will have to |
| Next, add the costs of property taxes and | | | | also, or lower your rent to cover the difference. |
| insurance into your net rental income calculation. | | | | If not properly researched, you can find yourself |
| Tax amounts can be easily obtained from your | | | | with an empty house and the mortgage coming |
| local government or even real estate agent. Get | | | | due. |
| an insurance quote from your agent and shop it | | | | By following these simple rules, properly |
| around to make sure you're getting the best | | | | researching the local market and being prepared |
| possible rate and coverage combination. | | | | for the unexpected you can easily earn a steady |
| Repairs and maintenance are the next category | | | | stream of positive net rental income. |