Rental property investment can earn you lots of cash if done the right way and dry you when you overlook certain factors. Therefore, let’s look at analyzing cash flow, determining market value, and estimating expense costs.

Analyze Cash Flow

One way to earn money through your property is by using cash flow- current income generated by your property. The other way is by building equity over time. As your mortgage balance decreases, the property’s equity increases.

Cash flow makes your invested properties better than any other. Here’s how you can do just that;

1. Geographical areas play a significant role in property values. These values tend to rise and fall at almost the same rates. Let’s say you are looking at 15 potential investment properties in the market locally, and then their prices ought to rise over time at the same rates.
2. When you get a similar type of loan with the same interest loans, mortgage repayment will almost occur under the same rates for each invested property. Picture buying several properties with a 10-year fixed mortgage rate of 3% interest and 10% down. The amount of loan you will have paid for does not change 5, 10, or 20 years to come.

Calculated as;

Property’s income – incurred expenses.

It might seem straightforward when calculating a property’s cash flow. However, a thorough cash flow analysis includes the following;

Mortgage

When calculating your cash flow, be sure to include all the unpaid loans, including mortgage payments. Now, mortgage payments usually are interest, insurance, property tax, or principal.

Utilities

If your property has utility bills (sewer, trash, etc.) paid for by the tenants, check each month with the local utility to know the monthly bills.

Repair Costs

Repairing costs are a part of the incurred expenses, including them when analyzing the cash flow.

Also include the credit loss or vacancy, non-recurring expenses, Homeowners association fees, and property management costs when analyzing one’s property cash flow.

Market Value

When calculating the price at which a property might sell, consider that several factors might cause price fluctuations. These factors include market comparables and the size of the property. Comparables are the properties next to yours. The value of comparables will affect the pricing for which your property sells. The size of the house also plays a critical role in valuing your property.

So before embarking on a rental property analysis journey, first determine the market value to become better acquainted with the costs.

Then compare prices based on the income and the operating expenses. When comparing the market price, run a financial exercise by setting rents next to the market value. Run another one with prices further away from the market value. From the results, you will know the extent of the risk you are about to take as an investor.

The correct investment analysis will always give you a headache, but the results are worth it. An excellent rental property investment analysis will guide you into making the right decision with your cash.

CTTO Article Source: www.biggerpockets.com