Before you invest in a rental property, you need to consider what you need to earn for the investment to be worthwhile? You will want to earn a profit each month on your investment that covers more than the property’s expenses. Your time is valuable, and you need to consider paying for yourself as part of the return on investment or ROI of your Florida investment property.
Before you can calculate the true ROI of a rental property, you have to factor in all the costs associated with holding that property, not just the purchase amount. You will need to know your rental income, total expenses, and the time spent managing the property.
Before we start the calculation, let’s define each term:
Rental Income: Rental income is any payment you receive for the use or occupation of a property. (IRS.gov)
Rental Expenses: Expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs. The IRS website has a long list of rental-specific expenditures that qualify for deductions you can review.
You may not deduct the cost of improvements. A rental property is improved only if the amounts paid are for a betterment or restoration or adaptation to a new or different use.
Cash Flow: In real estate, cash flow is the difference between a property’s income and expenses, including debts. (source)
Equity: The amount of money you’d receive after paying off the mortgage if you were to sell the home. (source)
Net Income: The income you receive from your rental property after deducted expenses associated with the home. (source)
How to Calculate ROI on Florida Investment Property
To calculate ROI on a rental property, use these 4 simple steps:
- Calculate your annual rental income
- Subtract your expenses from your annual rental income. This is your cash flow.
- Add your equity build to your cash flow. This is your net income.
- Divide your net income by your total investment to get your rental property return on investment.
All Brevard Property Management, in Indialantic, FL, understands that you need to maximize your ROI as an investment property owner. That’s why we carefully background check our rental applicants and conduct credit checks. We also conduct semi-annual inspections to ensure your property is well maintained. Contact us to learn more about why your property is in excellent management hands with All Brevard Property.