Renting Your House Out? Here’s How Much Profit You Should Make

When you’re renting out a property, any profit, even if it is less than $200, is considered a good profit. Net rental income is the amount you receive after deducting the expenses that come with owning a rental property such as insurance, taxes, mortgage, and property management costs.

Since owning a rental property comes with many expenses, you need to make sure that your rental income can cover all these costs and still you leave you enough to make a decent profit. If this is your first time calculating your estimated profit from a rental property, here is what you need to figure out to get an accurate estimate.

Calculating Your Rental Income

You probably know how much rental income your property brings if you already have an existing tenant. But, if you haven’t rented your property out yet, then you can use online tools to accurately estimate how much income your rental property will bring based on the average rent prices in your neighborhood. When you get certain rates for average rent prices of similar properties in your area, make sure you base your calculations on the lowest rate. This will help you be set realistic expectations and avoid overpricing your property. 

Calculating the Expenses

The expenses that come with a rental property include taxes, insurance fees, loan or mortgage payments, and property management costs. The professionals from Genuine Property Management point out that many property owners in Orange County waste their time and money on incompetent property management companies that only increase their expenses. To make a decent profit, these expenses, including those associated with property management, should not exceed 40% of your rental income.

When calculating your total profit, deduct 40% of the amount; this is the amount needed to cover the basic property expenses. Even if you base your calculations on the lowest rent average in your area, 40% should be more than enough to cover these expenses unless your property needs serious repairs or renovation. 

Calculating Your Net Profit

The remaining 60% you will get after paying the above-mentioned expenses is not necessarily pure profit. After covering all your expenses, you will need to start thinking about any mortgage payments or debt that you incurred to buy or maintain the property. You will be paying this debt using the remaining 60%. Whatever is left after that is yours to keep. However, you need to bear in mind that the amount you make as profit after paying the management and maintenance expenses, as well as the mortgage loan, determines how much the government is going to charge you in taxes. These taxes are different from those you have to pay for owning a rental property, so be prepared to pay two different types of taxes.

Renting out a rental property is not as easy as it may seem. Simple calculations like the ones we mentioned above can go a long way in helping you maximize your rental income. Make sure you find the right property management company that can keep your property in tip-top shape without wasting a lot of money on maintenance or other expenses.