Whether you're looking to get your feet wet in Venice real estate investing or are just exploring the investment market, it's important to calculate ROI. This blog post will help you determine the return on investment of a Venice rental property paid for with cash only.
Analyzing returns helps investors understand the potential for a property. ROI is also a critical metric to monitor when tracking a rental property's performance toward your financial goals. Check out these insights from our Venice Fl property management experts!
Why Pay Cash for a Rental Property?
Not every real estate investor can buy a property with cash only--and no additional financing. Many investors purchase rentals by placing money down and paying a mortgage every month. However, if you can save the cash and pay "in full" for a new property, that's a good thing! Analyzing the ROI on the property becomes easier, and you don't have the monthly burden of a mortgage payment to take away from your cash flow or returns.
What's the Formula for ROI on a Cash Transaction?
The most straightforward look at the return on investment for a rental property compares costs versus rental income. Remember: ROI isn't "profit." It's a profitability ratio that helps you analyze what you get back compared to the money you invest in a property.
A positive ROI means you're making money, while a negative ROI tells you that you're operating a rental that's costing you valuable income. Whether you see a negative number after calculating returns--or the positive number falls short of your expectations--landlords can use ROI to track progress and make changes to improve returns.
Begin With Your Investment Costs
What's the amount you paid (in cash) for the property? If you're calculating ROI for the Venice rental property paid for with cash only, then this is how much money you put down to take ownership of the property. For this example, the sale price of your new investment property is $350,000. With closing costs and additional fees to finalize the transaction at $10,500, your total cash payment for the property is $360,500.
Add Operating Costs
While cash transactions leave you without a mortgage payment every month, Venice rental properties have ongoing annual costs that landlords must cover. These costs can include:
- Utilities (while the property is empty, or if you include them for renters in the monthly rent amount)
- Landlord insurance coverage
- Property taxes
- Renovations or necessary maintenance
- Property management fees
These costs must add to your initial cash investment amount for an accurate calculation the return on your investment. For this example, your annual operating expenses are $7,500. Adding this number to your initial investment amount brings your total costs to $368,000.
Bring In the Rental Income
We've covered your costs--now it's time to look at income to complete the ROI formula. Estimating a monthly rent amount at about .08% of the property's price at purchase, you charge tenants $3,000 per month. In reality, depending on rental market research and advice from a property management company, you might adjust that rate to stay competitive and attract quality tenants.
Over the course of 12 months, your real estate investment generates $36,000 in rental income.
Calculate Real Estate Investment ROI
With costs and income numbers in hand, it's time to reveal the ROI! Divide your annual income for the rental ($36,000) by the total investment costs ($368,000) to get the return (.97). Since ROI is best represented as a profitability ratio, multiply that number by 100 to view your ROI as 9.7%.
What Can You Do To Improve ROI?
When you purchase Venice rentals, the end goal is to turn a profit and build your long-term income. Regardless of how much money you make from your investment (positive return or negative), Venice property managers can help landlords identify and tackle problems that might be stifling ROI--or boost it with positive changes!
Some common ways to improve the returns on your investment include:
- Increasing the rent
- Making smart renovations that attract quality long-term renters
- Improve tenant retention with a screening process and best practices that encourage residents to renew their leases
- Allowing pets
- Reducing repair costs by implementing a proactive preventive maintenance plan
Engaging a professional property manager for all leasing and operational tasks reduces income loss, minimizes risks, and boosts ROI.
Venice Property Management Monitors (and Improves) ROI
The ROI for an investment paid for entirely in cash is calculated by comparing the purchase price to the annual rent. To improve your ROI, it's crucial that you work with a qualified property manager who can help you identify ways to reduce costs and increase tenant retention. The right property management company frequently analyzes ROIs to optimize operations and boost returns.
Gulf Coast Property Management offers expert full-service property management that helps landlords enjoy more long-term success! We look forward to hearing from you about how we can assist you in improving your return on investments.
Learn more about the ROI for your investment properties with our free Rental Property ROI Calculator!