What is the average return on a rental property?

The benefit of a rental property is the actual money you have left at the end of each month. In general, a good rule of thumb is that if you can rent a property for 1 per cent of the purchase cost, then it may be a worthwhile investment.

What is the average return on a rental property?

The benefit of a rental property is the actual money you have left at the end of each month. In general, a good rule of thumb is that if you can rent a property for 1 per cent of the purchase cost, then it may be a worthwhile investment. And if you can make more than that, even just 2%, it is an excellent opportunity to add a cash flow positive investment to your portfolio. This is a quick and easy tool to help investors assess the potential of a property.

The rule of 1 is that the amount raised through monthly rent must be at least 1 times the final purchase price of the property. The cash flow formula is simple. Rental income minus expenses minus mortgage. The 50% rule for expenses includes property management.

Rental income minus expenses minus mortgage payment. When considering the profit to be made on a rental property, remember that a property can still be a profitable investment even if the cash flow is neutral or negative. Cash flow is the amount of profit you make each month after collecting all income, paying all operating expenses and setting aside money for future repairs. To be profitable as a landlord, the unit must be turned over quickly to avoid long periods of vacancy.

If an area is prone to earthquakes or flooding, the costs of insurance coverage can eat into your rental income. Property prices still tend to be high in New Jersey, where I live, so the potential for gains is not as great. Some bonds and stocks pay dividends, rental real estate can generate regular passive monthly income through rental payments, and cryptocurrency can generate a return if you lend it out on an exchange. This lets you know how much profit the rental property will make as a percentage of the amount of cash you have invested in it.

You will also end up with a smaller pool of tenants to choose from, as it may take longer to find someone who is a good fit for your rental. Of course, the higher the rental rates in the market, the higher you will be able to set the rent for the property. Other than that, I simply receive a direct deposit each month with the rental income, minus the property management fees and any maintenance costs incurred that month. The work at the beginning can pay off when additional properties are added, but the path to millionaire status through rental properties is not as straightforward as the HGTV shows might lead one to believe.

Landlording is a viable vocation; after all, landlords exist for every tenant, and often prosper financially. However, these properties tend to have much higher maintenance costs, which in turn will greatly affect the rental income you get from the property, reducing the profits you were hoping to make. Naturally, you do not want this effort to be wasted by not earning enough rental income to cover the time and effort you are putting into the property, nor do you want your rental rate to be too high, resulting in your property being empty most of the time and not generating any income for you. If you are wondering how much profit you should make on a rental property, the amount of repairs needed will influence the amount you earn.

Courtney Thomson
Courtney Thomson

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