![]() ![]() If the estimated conservative rental income pays for the operating expenses, you can run different scenarios to see what the financial performance of the property is when rents are set closer to market. But as a general rule, it’s usually better to conservatively determine market rents when doing an initial rental property analysis. It’s easy to be overly optimistic about potential rental income, especially when the demand for good homes to rent is so strong in most markets. Simply enter some information to view projected key return on investment (ROI) metrics, including cash flow, cash-on-cash return, net operating income, and cap rate. You can use it to forecast the potential return of a property. This simple spreadsheet by Roofstock provides an easy way to view the potential financial performance of a given property. However, guessing the cost of owning a rental property isn’t the best thing to do when you invest in real estate. That means if a house is renting for $1,200 per month the operating expenses should run about $600 each month, based on the 50% Rule. Some investors “guesstimate” operating costs by using the 50% Rule, which states that about half of the monthly rental income is used to pay for operating expenses, excluding the mortgage. There are two ways to forecast operating expenses if the property is vacant. ![]() That’s because sellers sometimes omit key information such as management fees or the costs of funding a CapEx account to make the property’s operating expenses look lower than they really are. But, always be sure to verify the seller’s information by speaking with a local property manager or other real estate investors. If the property is currently rented, ask the seller for the income and expense statements for the current and prior years.
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