The Ins and Outs of Rental Analysis: What You Need to Know

The Ins and Outs of Rental Analysis: What You Need to Know

There are 2,500 homes for sale in Indianapolis with a median list price of $240,000.

If you're going to invest in the Indy rental market, you've got to be sure you're purchasing the right home. A lot goes into evaluating a rental property's worth, but the most important tactic is to perform a rental analysis.

In today's post, we'll explain the ins and outs of rental analysis so you can look at the types of rental properties in Indianapolis and make the best decision for your real estate career. Investing in real estate can feel like a shot in the dark, but read on and you'll have a way to illuminate your decision-making process.

What Is a Rental Analysis?

A rental analysis helps investors figure out the profitability of an investment property. You'll perform a rental analysis before you decide to invest in a property so that you have all the data you need to make a sensible decision.

One of the main objectives of a rental analysis is to figure out the right rental price for the property. Pricing a unit too high or too low will result in vacancies and money left on the table, respectively. Several factors go into a rental analysis, such as rental prices for similar properties and the condition of the home.

Importance of a Rental Analysis

Rental analysis is important because it allows you to quickly narrow down the ideal investments in a given real estate market. Knowing exactly what a property's rental value is will help you maximize your ROI and find tenants quickly in a competitive rental market.

We touched on this above, but pricing your rental too high will result in less interest from good renters. As a result, your property is more likely to sit on the market and you'll lose thousands of dollars in rental income.

Pricing it too low will widen your pool of renters, but you won't be maximizing your income. A larger tenant pool isn't always a good thing, either.

Having more applicants makes tenant screening more difficult, which could put undesirable tenants in your unit. Bad tenants are more costly than vacancies in many cases. If you have to evict a bad tenant, it can be both stressful and time-consuming.

Rental Analysis Tips

The most important aspect of rental analysis is researching the local rental market. You want to look at similar homes of a similar size and arrangement in your neighborhood. This gives you a strong indication of what you might be able to charge per month.

You'll also need to consider the home itself, as well as the home price. If your home lacks certain amenities or needs updating, that will negatively affect the rental price. As for your home price, many experts suggest charging 1% of what you paid for the home per month for rent.

How PMI Midwest Can Help Your Real Estate Career

A rental analysis sets you off on the right foot as a real estate investor. You never want to enter a rental market without performing one, as it can tell you if a rental will be worth your money.

If you need assistance with a rental analysis, property management can help. Contact us at PMI Midwest to discuss your property management needs and to get a free rental analysis.