What are rental returns, and how do you calculate them?

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Rental returns and real estate  

Rental returns are the returns delivered on a property. Rents offer a long-term, steady source of income and are important for investors looking to diversify their investment portfolios. With rent and property prices rising since the pandemic, investing in property and reaping the rewards that long-term rental yields can deliver is a good way to make your money work for you.  

If you’re looking to invest in property, however, it’s important to calculate what the potential return could be. It’s vital to remember, for example, that rental returns typically don’t include any repair, maintenance, or damage costs that a property can need - meaning that your returns could end up being lower than you planned for. For this reason, it’s a good idea to aim for a property that delivers between 5-8% of rental income as you will still be left with a decent source of rent once any costs have been subtracted. 

If you invest with a platform, such as Bricksave, you can look forward to even better rental yields than this. Many Bricksave property investments deliver rental returns of around 9%, with maintenance costs already factored in.  

However you choose to invest in property, it pays to make the right investment decision for you. Here’s what you need to know about rental returns and how to find a property that suits your needs.  

What is a good total return? 

A good rental return can vary depending on a number of different factors, but few play as big a role as location. Often, the way to maximize your rental returns isn’t to invest in major cities, such as New York and San Francisco. Much more scope for improving rental yield can be found in cities with high population growth. For example, should you invest in a Miami property with Bricksave, you’re unlikely to reach the same annualized rental return as you would if you were to invest in a Chicago property where rental returns are around 9%. But as property prices appreciate in Miami, there’s still scope for you to benefit. There is more than one way to make gains from your property investment.  

Different properties in different areas of the country will offer different levels of rental yield, and while investing in property is generally seen as a safer investment to make, it’s still important to weigh up the risk profile of each potential investment. So how do you assess a property’s potential returns and how can you calculate an estimated rental return? 

How to calculate your rental returns 

Calculating your total rental returns will give you a good idea of which properties will make for a good investment. The main way to calculate the potential rental returns of a property is to take the annual rent of a property, divide it by the home’s value and then multiply it by 100. So, in the case where a property is valued at $400,000, and its annual rental income was $15,000, the rental yield would to 3.75%, a relatively poor rental yield.  

But calculating the viability of an investment goes beyond just the annual total returns. You will also need to bear in mind future tax obligations that you may be liable for as your rental returns increase. 

Be aware of the challenges rental properties bring 

While investing in rental property offers an attractive opportunity for passive income, it is important to be conscious of the innumerable challenges that come with operating rental property. If you’re economically secure enough to overcome the obstacle of actually financing a property, you’ll find that the process of both managing the property, and actually dealing with tenant turnover, requires significant time commitments.  

If you’re renting out a property, maintaining its condition to ensure it always meets the various requirements will take time and money – how much of the former often depends on how much you have of the latter. You’ll also need to continually do the math to ensure that the returns are worth the investment. Ultimately, while one of the most popular forms of steady income, owning a rental property is no walk in the park.   

Seeking steady returns in real estate 

Every investment brings a degree of risk. But by calculating your rental returns, you will be left with a good idea of which properties will be a more risky investment, and which ones will be less risky. Relative to some other assets and investments, the US real estate market is a safer, more steady area to invest your money. With rent prices spiking and property prices appreciating, investing in property remains one of the most popular ways for investors to diversify their portfolios into long-term assets.  

With Bricksave, you can invest in attractive properties in some of the most in-demand locations around the world. From only $1,000, you can start growing your rental returns by making long-term investments into this attractive asset class. Find out more about investing with Bricksave.  

Bricksave Admin
Bricksave Team

September 02, 2022

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