As 2022 hits the midway mark, property investors may be thinking about their return on investment (ROI) and what they can expect for the remainder of the year. However, with the many twists and turns that the economic landscape has taken, it's helpful to reassess where you stand.
A rental property management team can provide insight into what you can expect for your rental property in 2022. They can help you evaluate your ROI to ensure you stay on track for this year and beyond. So, what should you expect? Here are some expert insights!
Calculating Return on Investment for Rental Property
While there's not a universal ROI that property owners can "expect" for rental properties in 2022, most property managers will tell you that an ROI of 8% is still an excellent goal for 2022.
However, the first step in knowing what to expect (in general) for the rest of the year is determining the current ROI for your rental properties. Knowing where you stand now can help you forecast where you'd like to be, along with any changes you need to make to get there.
To calculate ROI, you will first determine the total net profit you get from a property. To determine how much ROI you'll generate from a rental investment, calculate the profit from the annual rent minus costs for utilities or expenses like rental property management fees.
Next, deduct the cost of the investment. This includes how much you paid for the property and the amount you invested in upgrading it. For example, if you charge $1,700 monthly, your annual rental income is $20,400. Then subtract $200 monthly for ongoing operating costs to arrive at the net revenue of $18,000.
Then, if the cost of investment was $200,000 (including renovation expenses), your rental return on investment would be 9%.
The actual calculation is: ROI= $18,000 ÷ $200,000 = 0.09
Convert the number to a percentage by multiplying by 100 (or an ROI of 9%).
One Percent Rule
When determining what type of ROI you can expect from a property, there are several factors to consider during the evaluation stage of a new investment. The best property management Baltimore, MD, offers will tell you that the 1% Rule is good for estimating potential returns and ensuring a property can generate an appropriate ROI.
To apply the 1% Rule, the monthly gross rental income must be at least 1% of the property's total purchase price.
For example, if you are considering purchasing a property for $200,000, the gross rental income should be $2,000 monthly. However, this is just an estimate. A property manager can help you consider the property's location, economic factors, and other critical information to determine if the property can be successful (and achieve the ROI you need) with a $2,000 per month rental rate.
Other Factors to Consider
While the 1% Rule is an excellent place to start, there are other factors that go into how much rent you may be able to generate from your property and what influences your return on investment. Work with experienced property managers to evaluate these aspects of an investment property's potential success!
Upfront Investment Cost
It's vital to consider how much you are paying upfront for the property. This is not just for the ROI calculation but also to determine what spending that amount means to your overall portfolio. When one property doesn't keep up with the ROI performance of other rental properties in a portfolio, it can drag down your overall investment returns.
Location of the Property
The property's location is vital because the neighborhood can drive the rental amount. You may want to diversify your portfolio with properties from different neighborhoods, or you may want to stick with primarily Class B neighborhoods since they typically perform best as rental investments.
Condition of the Property
If you have to put substantial money into the property, it can eat away at your ROI. Of course, if the house is priced so low that the upgrades or repairs will exceed your renovation budget to get the rental unit ready to rent, it might not be worth it. However, keep in mind that you will also have to wait while a contractor makes the repairs, meaning you can't cash in on rental income right away. So, the condition of the property can make a difference.
Work with a Baltimore property management company to help you find ideal properties in the right condition and in the best locations to benefit from competitive rental rates and consistent occupancy rates with good tenants. Property managers can also run a rental market analysis to help you generate the best returns in 2022 and beyond!
The Best Property Management Baltimore MD Offers Helps You Meet Your Investment Goals
Ready to get more out of your rental properties to end 2022? When searching for property managers near me, look for the most experienced property management companies to help you reach your investment goals. Rentwell has the best market experience to help property owners in Baltimore and the surrounding areas find excellent rental properties, then manage them to success!
Reach out to learn how our property management services help investors experience optimal ROIs.