As you choose particular properties and set your rental rates, you're probably wondering just how much rental profit you can expect on a property at a given time, given expenses and cash-flow concerns. In 2021 and looking into 2022, with uncertainty about interest rates for mortgages and different forms of rental assistance and eviction prohibitions, it can feel challenging to understand and plan for specific ROIs.
Luckily, the best property management Sarasota offers has seen many different shifts in the rental market over the years! We can help you understand your property investment needs when it comes to ROI, from answering the question "how much I can rent my house for" and more!
Determine Short-Term Cash Flow and Long-Term ROI Goals
As you first start as an owner and rental manager for your properties, establishing your cash flow baseline and managing expenses can feel like a month-by-month process for a while. These months may not feel like they return a profit, but expenses like necessary repairs drive future value for your rental. Plus, it's important to remember that real estate investing is a long-term strategy. As you optimize your rental management strategies or partner with a property management company, rental properties become more profitable.
Remember that ROI isn't the monthly rental income that pays the bills. While it's important to have short-term cash flow goals, profit and return on investment are best analyzed for rental properties over time. In the short term, you'll want to see that over the twelve months of a lease contract, you are seeing more cash left over each month than your expenses.
For ROI analysis, it is crucial to figure out what you're goals are—short-term and long-term—and how you want to handle your returns. For instance:
- Do you want to reinvest profits in more rental properties?
- Do you want to retire from your full-time job and enjoy the passive rental income from your real estate investment portfolio?
- Do you want to turn profits quickly and get out of the business for some reason?
When thinking through the returns you can expect to end 2021 and look ahead for 2022, your goals can affect what the "right" ROI is and what you should expect from your properties. In addition to your goals, other factors impact ROI, including property taxes, competition with other housing, and other expenses. Working with a Sarasota, FL property manager is one of the best ways to plan goals and put strategies in place to maximize returns!
Put the 1% Rule Into Practice
One way that some property owners make choices about whether a property is a good fit for rental investment is to apply the 1% rule. When using this rule, property owners estimate a monthly rent amount of 1% of the total cost of the property. If the market indicates 1% is a competitive rate, you probably have a rental property that will generate nice returns. However, if 1% would make the rent way too high for the area or the type of home, something needs to change about your investment strategy for that property.
In the case of a $200,000 house, for instance, if most similar nearby rentals rent for $1,500 or under, you might struggle to recoup your costs, since the 1% rule would dictate that you'd need $2,000 a month to make the property profitable. However, if you can manage expenses and find other ways to improve ROI, that property might be a good investment long-term as the market changes.
Some Years Thitem Unexpected Curveballs for ROI
No one (not even property managers) could have predicted the impact that 2020 and 2021 would have on rental properties and the challenges that many families would face when renters lost work suddenly and missed a payment. If you had hiccups in your ROI for your property investments during the pandemic, you are not alone.
The key in a long-term rental property situation is that focusing on your long-term goals can help investors get through curveballs in the market. With a long-term investment strategy, it's important to not focus only on "how much can I rent my house for." Since there will always be factors that a property owner cannot predict, embracing the reality that issues could arise helps you roll with the punches that may come—even during unusual economic situations. Partnering with an experienced property manager also helps investors mitigate tough times and keep their eyes on long-term success!
Work With the Best Property Management Sarasota Offers!
One way to get to know the rental picture and verify your potential ROI is to work with a great rental manager. The Gulf Coast Property Management team is ready to help you work to determine a great rental rate, value-add features that could help you rent your property consistently, and how to adjust rent over time. We understand that not everyone needs the same ROI to enjoy a profitable real estate investing business, but we have the experience to help every investor maximize returns! Let's talk about how our property management services can set you up for succession 2022!
Need to calculate the return on a rental property investment? Calculate your ROI with our free Rental Property ROI Calculator!