When it comes to rental properties in the greater Williamsburg area, an asset is a good investment if it makes you money.
That means different things to different people.
For some investors, a profitable rental property is one that earns cash flow almost immediately. For others, long-term appreciation is more prized. That’s why you have to set your investment goals before you decide which opportunities are worth your investment.
Establish Your Investment Goals and See if the Property Fits
The first step in determining whether a rental property is a good investment is understanding your own investment goals. Perhaps you’re looking for a long-term property that will increase in value, allowing you to retire. Maybe you want as much money per-night as you can earn, and you’re considering a short-term vacation rental.
These priorities will impact what you decide to buy and which investments will make sense.
If you haven’t already done so, consider what your investment goals are and make a plan for how you’ll achieve them. Then, you’ll have a better idea of where you want to look and what you want to buy.
Evaluate Capitalization Rate for Profitability
There is also the cap rate when you need help calculating a property’s potential return on investment.
To calculate cap rates, use this easy formula:
- Subtract expenses from gross income to arrive at net income.
- Divide net income by your purchase price
- Move the decimal places two spaces to the right to get your percentage
This is your cap rate.
It’s easiest to use cap rate when you’re evaluating the performance of assets you already own. When you’re doing this formula for properties you have yet to purchase, you’ll have to make some assumptions about the numbers that you use.
Additional Considerations for Rental Property Investments
There’s more to evaluating a rental property for potential profit than running numbers. You should also consider the following:
- Rental property location. Good investment properties are in healthy neighborhoods with high occupancy rates and proximity to schools, shopping, and entertainment.
- Rental property condition. Look for well-maintained homes that won’t require a lot of upgrades and renovations.
As you’re evaluating whether or not to invest in a Williamsburg rental property, reach out to us. We work with a diverse portfolio of rental homes and we understand the needs and requirements of tenants. We are constantly reviewing the rental values and the market trends. Contact us at Berkeley Realty Property Management.