Is Buying Rental Property A Smart Investment?
As a rental property owner and landlord, the primary goal is to end each month with a positive cash flow. To decide whether a rental house is a smart investment, you need to know the costs involved and estimate your potential return on investment.
According to Statista, in 2023 there were 14.1 million households (representing 42 million residents) renting single-family houses in the U.S., and Urban.org predicts there will be a 21% increase in total rental households between 2020 and 2040.
While investing in single-family rental (SFR) properties can sometimes provide both current cash flow and long-term appreciation, building a rental real estate portfolio generally requires time, energy, and a willingness to fine-tune your approach in response to evolving market conditions.
Rental Property NOI Calculation Example
Let’s say you purchase a three-bedroom home for $200,000, and you think you can rent the property for $2,100/month, which is $25,200/year.
Your monthly mortgage payment on the property (including taxes and insurance) is $1,400/month. You totally pay $16,800/year.
You collect $25,200 yearly in rental income.
and you pay in mortgage – $16,800
Your NOI is your annual rental income is $8,400 a year
$8,400 divided in 12 months you make = $700 free income monthly in you pocket.
