How much time do you spend calculating the numbers for your rental property investment? For most people, this amount of time is slim to none. They probably spend more time picking out their outfit in the morning than they do crunching the numbers.
Do not make important decisions about your rental properties based on gut feelings and intuitions. While you may get lucky, it puts you at significant risk of making a bad deal.
Performing a monthly statement analysis ensures you keep your thumb on the pulse of your rental property. You’ll know exactly what it’s worth and what it’s making you at any given time.
You’ll enjoy these benefits when you perform a monthly analysis and ROI review.
1. Monthly Cash Flow
Looking at the statement, you’ll be able to determine your monthly cash flow. This is the amount of money that you have leftover after all of the bills have been paid. It’s income minus expenses.
To have an accurate calculation, you’ll need to factor in all possible income sources and expenses.
2. Rate of Return
Your ROI is your cash flow compared to the cost of your investment. You’ll want to know what this percentage is so that you can monitor your investment property performance. If the ROI isn’t a high enough percentage, then you may find it better to sell the property and invest your money elsewhere.
You’ll also want to consider your cap rate or capitalization rate. This is the rate of return that you expect the property to generate. The cap rate can also represent the level of risk that you’re taking on when investing in the property. Generally, a lower cap rate represents a lower rate of return and low risk. High cap rates represent a high return but are also high risk.
Monitoring this ensures that you see a desirable return on your investment without taking on more risk than you’re willing to accept.
3. The Health of Your Property
You need to maintain and repair your property to retain its value. However, if these expenses become too much, they’ll eat into your ROI. Looking at your monthly statement ensures that your property isn’t requiring an excessive amount of repairs. If you start to see the expenses rising month after month, you can take swift action to stop the outflow of money.
You can use your monthly analysis to look for available upgrades that tenant-proof the property and reduce the need for ongoing maintenance tasks. Examples of this type of upgrade would be to remove the carpet and install tile or LVT flooring. You could replace the hollow core doors with solid ones.
4. Potential for Increased Profit
While the other benefits help you monitor your current return and prevent a reduction in return, this benefit helps you look for ways to increase your ROI. A monthly analysis can be used to leverage new avenues of income or an increase in the income you’re already receiving.
Perhaps you find that your property can support an increase in the rental rate. If your current rental rates are low in a booming market, then it’s time to consider an increase.
You may also find a way to increase ROI through a decrease in expenses. If you’re currently paying for utilities, perhaps you can shift these expenses to the tenant?
You could change the landscaping from one that requires regular upkeep and watering to one that’s considered zero-scaping. It’s just as attractive but requires little to no water and upkeep.
Make Your Monthly Analysis Simple
As you can see, looking at the numbers in your monthly statement analysis is vital to ensuring the success of your investment in rental real estate. Consider working with a property manager who can prepare the monthly report for you. This streamlines and simplifies the process for you.
Contact our team today and experience the simplicity of working with a property manager.