Investing in rental properties can be a great move for those that take the time to do it right. That said, it’s not enough to simply jump in without doing your homework; you have to put in some legwork if you want to realize the incredible benefits associated with investing in rental properties.

HOW TO START

How Do You know If A Rental Property Is A Good Investment?

There are several factors that go into determining whether or not a rental property is a good investment, but there is one factor that takes precedence over just about everything else: cash flow. Otherwise known as the money you are able to pocket each month, cash flow represents the capital you are left with once you have paid all of the expenses associated with owning a rental property (mortgage, utilities, HOA fees, etc.). That said, let the numbers do the talking. It should be your number one priority to find a home that you can rent for more each month than it costs to maintain it. Not only that, but the rent should be slightly higher than your expenses (because you want to make a profit), which begs the question: how much more should you charge in rent than you are paying in expenses?

Quite simply, the amount you charge in rent should be a percentage of your home’s market value. Perhaps even more specifically, most landlords charge somewhere in the neighborhood of one percent of the home’s value. For example, for a home valued at $250,000, a landlord could charge between $2,000 and $2,750 each month.

Take one percent of the homes value and compare it to the mortgage you would take on. If the property is cash flowing, you may have a good deal on your hands. If not, you may need to look elsewhere.