At a minimum a rental property should show a profit of two months rent annually after saving two months rent for repairs annually and with any mortgage/tax/insurance costs being covered with maximum six months rent allowing for two months a year being unoccupied.
I would also figure the payoff on a seven year mortgage (max of ten).
If it doesn’t fit these parameters you are looking for trouble. Oh, I also plan any tax benefits as gravy.
Be strict with yourself as an owner and fight the urge to pull profits for spending until properties are paid for.
Good luck, WWG1WGA!
We are hoping our rentals will serve as a nice chunk of our retirement revenue.
Few have rules anymore and many follow the real estate always goes up mantra. There will be pain.
After that covid no rent dictateI we experienced, I would never invest in rentals again.
I have a simple rule to follow on my rentals. Monthly rent is based on 1 % of property value. So an 80K property is $800 a month rental. That pays the mortgage, taxes and upkeep with a little left over on a 10-12 year mortgage. I don’t depend on rent revenue for income but for building equity in the property. When I say property value that does not mean that is what I paid for it. I can buy a house for $35k, put $20K more into it and turn it into an $80-90 k house easy.
I’ll yield to someone with recent experience, but the old rule of thumb was also monthly rental rate was 1% of the value of the property.
Of course water heaters were a lot cheaper back then.
My rental pulls in .5%.
It is doing ok. Good tenants, 100,000 mortgage and 375,000 worth. Will pay it off this year. 2008 home in TN.
I will retire in it and sell my primary home.