How do you determine the profit on a rental property?

Question

Ok duh, ( Profit - Cost ) Time

I'm looking for more details, or what things to consider in calculating the cost. Someone who actually has a rental property maybe?

As a complete non-professional I respect your opinion, however in a down market where rent is tending upwards, rental prop is a go. Buy low rent high. Have you not heard that before?

Answer 1

Two numbers that professionals often use are the "Cap rate", which is the net profit for one year divided by the total sales price of the property, and "cash on cash", which is the same yearly net profit divided by the actual investment--what you put down plus all the expenses in getting the place ready and rented. This helps you compare the return on investment to the return you could expect if you invested your money elsewhere.

Don't forget in your estimating to include the expected costs of normal maintenance, insurance, taxes, and reasonable periods of vacancy. Some really conservative investors figure that all these costs average 1/2 of rental income.

Answer 2

2

Answer 3

I don't have a rental property so cant speak from experience, the thought has crossed my mind a few times, but I have dismissed it.
The way I see it is that if I could invest say £150.000 on a house to let out, the main thing I would be looking for is a long term return, I would assume the property would appreciate in ten years by at least 50%. This means that I could possibly sell in 10 years time for 225k, (then because I would have to pay tax on that profit, because this would not be my main place of residence, this would take a sizable lump from that amount ).
Also having heard some nightmare stories about tenants and all the hassle involved, that really put me off.
I haven't bothered to work out the compound interest on that amount (assuming that you have the cash to invest immediately), but I imagine the difference wouldn't be far out, 50% return over 10 years, work it out for your self, you could get 5% per year over 10 years compounded, tax paid!
Now assuming you don't have 150k cash to invest but have to take out a morg' your expected rent on a property of that price would be in the region of of what? £400 a month?
I also haven't bothered to look into the cost of that morg' over a 10 year period but it must be more or perhaps equal to the increase of the value of the property? (That's some thing else you can work out for your self). I also have not looked at the possibility of property prices decreasing over the next 10 years, I dont think that could happen.
So as a complete non 'professional' I would advise against it

Answer 4

Profit is

Rent minus Mortgage, Upkeep, Taxes, Repairs

Answer 5

Income minus expenses equal profit.

Answer 6

Income minus everything else u spent on the property