The Key to Successful Rental Investments: Running the Numbers Right
Are you thinking about investing in a rental property? It’s exciting to imagine the potential income and growth, but before diving in, you need to make sure the numbers add up. One of the biggest mistakes investors make is focusing solely on the rental income and mortgage payments, while overlooking all the other factors that can make or break a deal.
At Viza Property Management, we’re constantly evaluating deals to find the best opportunities for growth. Today, I want to walk you through the essentials of running the numbers on a rental property to ensure your investment is solid from the start.
Step 1: Finding the Right Deal
Before anything else, you need to find a property that catches your eye. Once you’ve got your eye on something, it’s time to dig into the financials and see if the deal really makes sense. This means breaking down all the costs that come with owning and maintaining a rental property—not just the obvious ones like the mortgage, but all the little things that can add up over time.
Step 2: Calculating Expenses
Owning a rental property comes with a wide range of expenses beyond just the mortgage. Here’s a list of costs you need to consider when running the numbers:
- Mortgage Payments: This is the principal and interest you’ll pay on your loan, but it’s just the starting point.
- Property Taxes: These can vary widely depending on location, and they often increase over time, so keep that in mind.
- Homeowner’s Insurance: You’ll need coverage to protect your investment from things like natural disasters, theft, and liability.
- Repairs and Maintenance: Even if everything is perfect at move-in, over time things like the HVAC system, plumbing, and appliances will need repairs or replacements.
- Capital Expenditures: Don’t forget to set aside reserves for larger expenses down the road, like a new roof, replacing major systems, or structural repairs.
- Vacancy Rate: Not every month will have a tenant in place, so you should account for times when the unit might sit vacant.
- Property Management Fees: If you’re hiring a company to manage the property, like Viza, be sure to include this in your costs.
- Utilities: In some cases, landlords are responsible for covering utilities like water, trash, or even electricity.
- HOA Fees (if applicable): If the property is part of a condo association or planned community, there might be fees associated with it.
A common mistake is only looking at the mortgage payment and rental income, but ignoring these additional costs can turn what looks like a great deal into a money pit.
Step 3: Assessing Rental Income
Now that you know the expenses, it’s time to look at the other side of the equation: Rental income. The first thing to do is research what similar properties in the area are renting for. This will give you a good sense of how much you can charge for rent and whether it will cover your expenses.
It’s important to be realistic here, just because the market rate looks good, doesn’t mean the property will automatically fill with tenants. Location is key. Is the property in a desirable area? Is it close to schools, transportation, shops, and restaurants? Are vacancy rates low? Make sure the property is in an area where renters want to live, and that the rental income is competitive for the market.
Some investors mistakenly assume they’ll always have a renter lined up. But the reality is, there are times when the market shifts, or vacancies last longer than expected. You need to ensure the rental income will cover all the expenses even when things don’t go perfectly.
Step 4: Prepare for Worst-Case Scenarios
Real estate can be unpredictable, and you should always plan for worst-case scenarios. A burst pipe, a tenant who stops paying rent, or a roof that needs replacing earlier than expected can all happen, and they can put serious pressure on your cash flow. By factoring in these risks from the start, you can avoid getting caught off guard.
At Viza, we always recommend building a cushion into your numbers to account for these worst-case scenarios. It’s far better to be conservative in your projections and end up pleasantly surprised than to count on everything going smoothly and run into trouble when it doesn’t.
Step 5: The Work Before the Work
The most important part of real estate investing happens before you even sign on the dotted line. The due diligence process, gathering information, calculating costs, and considering all the variables, will determine whether the deal makes sense financially. It’s the work you put in before you buy the property that sets you up for success after the purchase.
At Viza Property Management, we run these numbers every day to ensure that our deals are profitable and sustainable. We’re committed to helping you make smart, informed investments that set you up for long-term success. If you’re considering a property or want to learn more about running the numbers, reach out to us—we’re here to help.
Let’s Get Started!
At Viza, we believe in doing the homework before diving into any real estate investment. If you want to see how a property stacks up, or need advice on whether a deal makes sense, we’re happy to assist. Together, we’ll make sure your investment isn’t just another property—but a solid step toward your financial growth.
Looking forward to helping you make smart, informed investment decisions!
Best regards,
The Team at Viza Property Management
