Folsom Property Management Blog

A Step-by-Step Guide to Performing a Rental Analysis

A Step-by-Step Guide to Performing a Rental Analysis

Picture it: you're starting your own property empire. You've invested in rental properties. But what do you charge for rent?

There are so many factors to consider, and the market always seems to be changing!

That's where a rental analysis can help you out.

Read on to find out how to perform a rental analysis in Folsom, California.

Look At The Local Real Estate Market

Research rental market trends in the specific area where the property is located. Analyze rental rates, vacancy rates, and demand for rental properties.

Some cities are better investment options than others, so you'll want to look at multiple areas if you're performing an analysis on a new property.

Identify similar properties in the Folsom area and analyze their rental rates, amenities, and occupancy rates. Understanding the competition helps in setting a competitive rental rate. You can also keep an eye out for local real estate trends.

Gather Property Information

Gather essential information about the property, including location, type (e.g., single-family home, apartment, condo), size, number of bedrooms, bathrooms, and any unique features or amenities.

Evaluate the property's condition, required repairs, and estimated maintenance costs. This information will impact your budget and potential return on investment.

Calculate Rental Income

Determine the potential rental income by considering the average rental rates in the Folsom area and adjusting for the property's features, size, and condition.

Account for potential vacancy periods based on the local vacancy rate. Multiply the rental income by the occupancy rate (1 - vacancy rate) to estimate the actual rental income.

Figure Out Operating Costs

Next, you'll need to look at the potential costs of managing your property.

List and calculate all fixed expenses, including property taxes, insurance, homeowner association (HOA) fees, property management fees, and any other consistent monthly costs. If you work with a property management company, you may save money in some areas.

Estimate variable expenses such as maintenance, repairs, utilities (if not covered by tenants), property management fees (if applicable), and any unexpected costs.

Look at ROI

Subtract the total annual operating expenses from the estimated annual rental income. This will help you calculate the property's annual cash flow.

Calculate the return on investment by dividing the annual cash flow by the total initial investment (purchase price, closing costs, and any necessary renovations or repairs). You can multiply what you get by 100 to get a percentage.

Set Your Rate

Based on your analysis, set an initial rental rate that covers all your expenses, ensures profitability, and is competitive in the local market.

Factor in room for negotiation based on market conditions and property desirability. You may offer slight flexibility in the rental rate to attract quality tenants.

Monitor and Adjust

It's important to update your rental analysis every so often.

Periodically review the rental market, property condition, and operating expenses to ensure your rental rate remains competitive and reflective of property value.

Adjust the rental rate based on changes in market conditions, property improvements, or shifts in demand and supply.

Perform a Rental Analysis Today

There's a lot that goes into performing a rental analysis. Hopefully, you now know enough to pull off an accurate assessment.

Do you need help with property management? Residential Equity Management has the experience and skills to get everything you need done. Contact us today to get started.