Investment properties can be an excellent source of passive income. However, before you jump in and make an offer, it is essential to understand the costs associated with a property. Knowing how to calculate the costs of an investment property can help you determine if the property is a good investment and how much you can make from it. So, come with us as Valley Building Inspections helps you do just that.
Step 1: Determine Your Total Acquisition Costs
When investing in a property, the primary cost is the purchase price. However, you should consider other acquisition costs, such as closing costs, loan origination fees, appraisal fees, inspection fees, and title insurance. These costs can add up quickly and can significantly increase your total outlay. Make sure you include all the acquisition costs when calculating the total cost of the investment property.
Step 2: Estimate Your Operating Costs
Once you have purchased the property, you will need to maintain it. This includes costs such as repairs, maintenance, insurance, property taxes, and any fees related to managing the property. These operating costs are essential to the investment property’s total cost, as they can significantly impact your overall return on investment. Make sure you consider these expenses when determining if the investment property is profitable.
Step 3: Calculate Your Rental Income
Investment properties generate income through rent. Determine the market rental value of your property by researching comparable rental rates in the area. You can use online rental listing websites like Zillow and Craigslist to find similar properties and their rental rates. You should also consider the area’s vacancy rate to avoid overestimating your potential rental income. Make sure you calculate the net rental income after your operating expenses.
Step 4: Determine Your Cash Flow
Once you have estimated your acquisition costs, operating costs, and rental income, you can calculate your cash flow. Cash flow is the amount of money left over after all the expenses are paid. Positive cash flow is critical for a profitable investment property. Determine whether the cash flow is sufficient to cover your operating costs and mortgage payments and provide a positive return on investment.
Get Your Investment Property Inspected
Are you considering the purchase of an investment property in Scottsdale, AZ? Call Valley Building Inspections at (480) 860-1100 for a commercial inspection. We’ll make sure all the systems, foundation, and sewer are worth your time and money. We’ll also conduct a radon and mold test for added peace of mind. Request your quote today and feel confident about your investment property.