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How to Calculate Net Rental Income

Item ID#:2454792Location:
Seller ID#:571214 Views:

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The key to creating a successful real estate rental business is
making sure your net rental income is positive. In order to do this, you
must properly research the costs of owning property compared to the
cash inflows you receive. You must also take into account the many
different problems and unique situations that may present themselves,
and be prepared for them.If you're not properly prepared you
could find yourself with negative net rental income, which will chip
away at your savings or other sources of income. In order to avoid this,
let's break down the costs, income and other things you need to know
about in order to make a healthy return on your rental property.Costs
Your biggest cost for your rental property is going to be the
mortgage. Few people have the money to buy a piece of property outright.
Even those who do are better off using the leverage mortgages provide
to own more property. For example, instead of putting $100,000 down on
one house you could put down $20,000 on five houses.Research the
market and find out comparable sales prices to insure you are paying a
price in line with the market. Make sure to calculate in any closing
costs into your calculations.Next, add the costs of property
taxes and insurance into your net rental income calculation. Tax amounts
can be easily obtained from your local government or even real estate
agent. Get an insurance quote from your agent and shop it around to make
sure you're getting the best possible rate and coverage combination.Repairs
and maintenance are the next category of costs to consider. While it's
impossible to know what exactly is going to break down a good rule of
thumb is to set aside 1% of the properties value every year for repairs,
maintenance and cleaning.Finally, make sure to factor in any
costs associated with advertising or acquiring tenants. Newspaper and
online ads, signs, credit reports, and back ground checks all factor
into this.Income
Now that we've figured out what we're sending out, let's look at
what is coming in for our net rental income equation.Rent is
obviously the main source of income. Make sure the rent you are charging
is in line with the market and also enough to cover your costs. Also
make sure you are accounting for vacancy in your property. A good rule
of thumb is to expect that your property will be vacant 7% of the year.Don't
forget about additional sources of income that can offset some of the
costs. Application fees, late fees and security deposits can all be used
to cover some of the above expenditures.Make sure you thoroughly
research the rental market for unique situations that may effect this
calculation. For example, if every land lord in town pays for heat or
other utilities you will have to also, or lower your rent to cover the
difference. If not properly researched, you can find yourself with an
empty house and the mortgage coming due.By following these simple
rules, properly researching the local market and being prepared for the
unexpected you can easily earn a steady stream of positive net rental

If you want to learn more about net
rental income and how to invest in commercial real estate, request
your free copy of the 5-part video series "Commercial Real Estate Investing
For Beginners."You'll learn how to find, analyze, and fund
commercial real estate deals, just like the members of The Real Wealth
Company do!
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10/4/2015 1:18:33 PM UTC