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How Much Profit Should You Make on a Rental Property?

by | Mar 17, 2023 | Blog, Homeowners, Homes, Villas and Condos, News, Property Management, Real Estate News, Renters | 0 comments

How Much Profit Should You Make on a Rental Property?

The objective of a rental property business is to generate gross monthly income that can help cover operating expenses and result in profits. But in order to achieve this, you’ll first need to determine how much profit you should make on a rental property based on the goals of your business.

In this article, we walk you through the steps of calculating profits from a rental property and the top considerations to keep in mind.

How to Calculate Profit From a Rental Property

One of the benefits of investing in real estate is the ability to make passive income. However, generated income is not the same as profits, since operating expenses will need to be subtracted. To help you calculate the profit from your rental property, here are three steps to follow.

1. Forecast Rental Property-Related Expenses

Just like any other business, there will be operating expenses that will need to be covered monthly. Generally, costs you can expect to deal with are:

  • A mortgage payment and property taxes: This expense varies depending on which financing method you used to purchase your rental property.
  • Maintenance repairs: Older rental properties may require more maintenance than newer properties.
  • Apartment turnover expenses: You will need to turnover an apartment whenever a tenant decides not to renew their lease agreement. This requires you to advertise your rental online, require tenant screening reports from applicants, create a new lease agreement, and prepare the property for the next tenant.
  • Landlord insurance: Landlord insurance is highly encouraged to ensure your property is protected when rented out to tenants. The amount of protection your policy offers will influence your monthly cost.

Once determining the total amount of expenses you will need to cover, this can then be taken into account when setting a rent price.

2. Determine Your Set Rent Price

There are a few factors to consider when determining how much to charge for rent. Here are the main four to keep in mind when determining a rent price.

  1. Seasonality: You’re able to charge more for rent when the local demand for rentals is high. On the other hand, low demand makes it difficult to charge a higher rent price.
  2. The value of your amenities: Certain apartment amenities can increase the value of your rental property. If your unit offers in-unit laundry or stainless steel appliances, then this allows you to charge more than units that do not offer those amenities.
  3. Consider current events: There may be instances where current events could be impacting the operations of your rental business. Whether that’s changing landlord-tenant laws or tenants unable to pay rent due to the pandemic, you should consider what’s happening in the rental industry when setting a rent price.
  4. Operating expenses: Your rent price should help cover monthly operating expenses, while still considering local rent comps to avoid overcharging.

How Do I Know If My Rental Property Profits Are Good?

Determining whether or not the profits from your rental business are good will depend on the goals you’re hoping to achieve. Although some landlords approach any profit as good profit, that may not be the case for everyone.

Creating a rental property business plan can be one way to help you establish what good profits look like and determine how much you hope to make in profits at the end of the year. Setting a goal towards rental profits will give you a benchmark to help you determine if profits you’ve made so far are good or bad.


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