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Rental Analysis: Why It's Important and How to Do It Right

Rental Analysis: Why It's Important and How to Do It Right

In Texas, homes sell for an average of around $305,000. Believe it or not, this is less than half what you can expect to pay in California.

To maximize your Houston real estate return on investment, it's essential to assess your rental property's potential. Conducting rental analyses can provide valuable insight. Let's take a closer look at how you can get started with a rental analysis.

What Is a Rental Analysis?

As the name implies, a rental analysis aims to determine a property's profitability. People use rental analyses to decide whether to invest in a specific property.

Its main purpose is to help investors avoid underpricing or overpricing their rental rates. This leads to better viability as a rental property, as you'll understand how to determine rent prices accurately.

Why Is It Important?

A rental market analysis can help you save time and make extra money. In context, it will be easier for you to find rental properties worth your attention. Since you'll price rent appropriately, you'll also find tenants faster and more consistently.

This can substantially reduce the number of vacancies your property experiences. Remember that even a handful of months your property is vacant can cost thousands of dollars.

For example, let's assume you own a single-family home you rent to tenants for $2,000 per month. Your mortgage, utilities, property taxes, etc. add up to $3,000 monthly. If your property is vacant for three months, you'll spend at least $9,000 out of your own pocket.

Depending on your financial situation, this could cause unnecessary stress. Conducting a rental analysis will help you predict a rental property's cash flow and find good neighborhoods to invest in. With this number in mind, you can assess how it will fit into your portfolio.

How Do I Get Started?

It's possible to conduct your own rental analysis. There are key expenses you should consider, such as:

  • Mortgage
  • Utility costs
  • Maintenance expenses
  • Homeowners association fees
  • Miscellaneous expenses
  • Cost of vacancy

You can then compare these numbers to other rental properties in the local market. This can help you determine if the property in question is performing above or below average. While you can handle this responsibility by yourself, consider outsourcing to a property manager.

They have the resources and tools to save you time and get better results. When searching for a property manager, look into their past reputation to see what other people have to say. Look for reviews that mention timeliness, professionalism, and communication.

You should also ask about their compensation. Many property managers charge a fee in the form of a percentage of your rental income. Clarifying this information will prevent financial surprises.

Handle Your Rental Analysis ASAP

Conducting a rental analysis will help you better understand your rental property's long-term potential. The sooner you have this information, the better your chance of avoiding mistakes you may have otherwise made.

Get in touch with a representative from Precision Realty & Management today. Our professional team knows the ins and outs of the Houston market and can help you make the best decision.