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Rental Property Investing
| | Thursday, August 26, 2004 @ 08:00 AM EDT
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Contributed by: John Michael
John Michael Properties
Read more archived articles about Buying
Determine the amount of rent you are able to charge by taking a look at what comparable properties are currently renting for in your local market, checking out the classified ads in your local paper(s), and speaking with some leasing agents at real estate rental companies. Be sure to allow for some portion (around 5 percent per year) of the time for your property to be vacant
You may end up paying some or all of your renter's utility bills, such as garbage, water, or gas. Estimate from your own usage what the monthly tab will be. Expect most utility bills to increase a bit because
tenants will probably waste more if you're picking up the bill.
Call your insurance company to inquire about how your property insurance premium would with rental property.
Figure that you'll spend about 1 percent of the property's value per year on maintenance, repairs, and cleaning.
Finding good tenants takes time and promotion If you advertise, estimate at least $100 to $200 in advertising expenses, not to mention the cost of your time in showing the property to prospective tenants. You must also plan on running credit checks on prospective tenants.
Rental brokers normally take one month's rent as their cut.
Now divide by 12 to get a monthly figure of cost!
Total all the monthly expenses and subtract that number from your estimated monthly income after allowing for some vacancy time. This is your property's cash flow.
If you have a negative cash flow, you may actually be close to breaking even when you factor in a rental property tax write-off known as depreciation. You break down the purchase of your property between the building, which is depreciable, and land, which is not depreciable. You can make this allocation based on the Assessed value for the land and the building or on a real estate appraisal. Residential property is depreciated over 27 1/2 years (3.64 percent of the building value per year).
Note: John Michael is the author of many guides that can help you become more successful as an investor. See http://www.thecreativeinvestor.com/ChanPart-JohnMichael.html
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