Purchasing an investment property to rent is a very lucrative business in Oxford, MS. With the near endless inventory of students attending and graduating the University of Mississippi, there is constant turnover. You may also choose to rent your house if you are relocating, but wishing to delay selling. A good tenant can help create cash flows to go toward paying off your mortgage more quickly or save for a retirement account.
Allowing someone to rent your home is a major undertaking. Many landlords rely on the services of a property manager to address to daily issues. Daily issues could be repairs, routine maintenance, and receiving rent checks. These property management fees are usually 10% of the total monthly rent and save the landlord from creating a flexible schedule to unclog toilets or fix pipe bursts. It’s also smart to plan to pay for property taxes, maintenance costs, and homeowner’s insurance. Of course, you will also be liable for the mortgage payments if your tenant suddenly moves out. Scared yet?
Investment Property Arithmetic
When you’re trying to determine how much rent to charge, there are a number of things you’ll need to think about. How much is your home currently worth? In a good market, this amount will likely be different from the price you originally paid for your home. Typically, the rents that landlords charge fall between 0.8% – 1.1% of the home’s value. If your home is worth $100,000 or less, it’s best to charge rent that’s close to 1% of your home’s value. If your house is more expensive, it’s a good idea to charge less rent so that you can attract more tenants. Of course, this is also contingent on the number of bedrooms since the number of bedrooms increases the rent potential of a property.
If your property belongs to a homeowner’s association or condominium association, check with the covenants. The covenants should provide some verification of renting your property.
Here is an Excel spreadsheet example to help you calculate % profit over 3 years. Add columns to expand the investment length.