If you’re planning to purchase an investment condo, one of the essential steps in the process is estimating your expenses and income, to calculate your net profit. Figuring out your estimated ROI can be complicated, but we can help you figure this out by asking the right questions. There isn’t an exact formula to figure out how much you’ll gain, since changes in the market, unexpected expenses, and occupancy will affect your overall profit, but you can put together a good estimate with the right figures in mind. The basic idea is gross profit – initial investment and operating costs = ROI. The answers to the following questions will lead you in the right direction.
What is My Cost?
Start your calculations with what the property has cost you thus far, and how much it is expected to cost you continually. Simply put, you need to know what your initial investment is and what your operating costs are. This could include mortgage payments, renovation costs, insurance, HOA fees, cleaning fees, and landscaping services. Adding these up will give you an idea of your costs, and help you set both your prices and expectations.
What Will I Charge for the Rental?
Deciding how much to charge for your rental is a complex process. Make sure to calculate based on a combination of on and off season, weekday, and weekend rates. Another factor to consider are comparable properties in your area and how your property compares. Is your property newer or does it offer additional amenities like pool access or a gourmet kitchen? You may be able to charge more for additional bathrooms, easier parking, or other perks that make it more desirable.
What Regular Maintenance can be Expected?
Regular maintenance costs should be included in your calculations. Seasonal landscaping care and new air filters are a couple examples of regular, expected maintenance costs. Vacation rentals tend to see more wear and tear, so you should take that into consideration when you estimate your regular maintenance costs.
How Much Should I Save for Emergencies?
There is no one size fits all answer to this question, but it’s important to think about what kind of cash reserves you have on hand for emergency expenses, like broken appliances, furniture that needs to be replaced, or other things that may not be covered by insurance. If you know you already have cash available to handle these sorts of emergencies, you may not need to set aside as much or any of your profit, but if you don’t it would be in your best interest to begin that savings account ASAP.
Make sure you take the time to give the investment a thorough look, considering your initial investment, ongoing investment, and gross profit. These numbers will get you to a reliable estimate of your net profit.