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- Cash Flow Analysis: Calculate the expected rental income minus all expenses (mortgage, taxes, insurance, maintenance) to determine monthly cash flow. Positive cash flow is essential.
- Cap Rate: The capitalization rate (cap rate) is calculated by dividing the net operating income (NOI) by the property’s purchase price. A higher cap rate indicates a potentially better investment.
- ROI Calculation: Determine your ROI by dividing the annual return (rental income minus expenses) by the total investment (down payment plus closing costs). Aim for a high ROI.
- Market Comparables: Compare similar properties in the area to ensure the property is priced competitively and has the potential for appreciation.
- Tenant Demand: Research local rental demand and vacancy rates to ensure you can consistently attract tenants.
- Property Condition: Consider the age and condition of the property. Older properties may have higher maintenance costs, affecting ROI.
Conclusion: By conducting thorough cash flow analysis, calculating cap rates, and considering market comparables, you can evaluate potential investment properties effectively to maximise your ROI.
