How To Calculate Your Rental Property’s True Net Income

By Travis Bard

We have a simple goal - impact the lives of our clients and change the lives of our agent partners. The PLACE.com business platform allows us to do both and we could not be more excited about the future.

What’s the best way to get the true net income on your rental property? I’m surprised that only a few people know how to get the correct valuation of a rental property. With my background in commercial banking, let me share with you three key factors to help you determine whether your property is making money.

1. Start with gross income. Figure out how much your property earns each month. Next, subtract the expected expenses on that property, such as property taxes and insurance. Don’t forget the property management fee. If you manage it yourself, you still need to charge for that cost to see your rental income.

2. Repair and replacement. You need a budget for things like replacing the carpet, fixing drywall, and doing minor repairs and improvements along the way. If you don’t set aside some money each month, you might get hit by unexpected large expenses.

3. Vacancy factor. I typically use a 5% vacancy rate, which is generally sufficient over time. I also use a 5% repair and replacement allocation for repairs and replacements. When we add all these up, you can calculate the actual net income of your rental.

When analyzing rental income, I often see people only deducting one or two expenses and assuming that’s their net income. That’s not accurate. To truly understand your income, you must look at all the relevant costs.

Rentals are a large investment, and you need to evaluate your income carefully to ensure you’re paying the right amount for the property and expecting the right return.

I’d love to have this conversation with you if you’re looking at rental properties or if you have one and want a better analysis. You can call or send me a message at (928) 710-7007 or travis@legacyren.com. I’m here to guide you.