If you want to invest in rental real estate in Fort Myers then one of the first things you’ll need to do is determine the value of the property. After all, how else will you know if it’s the right investment for you? In this blog post, we’ll share with you the 3 ways to value a rental property in Fort Myers so you can know right away if you should invest in a property…
When you’re looking at rental real estate to decide whether to invest in it or not, the asking price is just one way to value the property. That’s the price the seller values the property at. Your job, as an investor is to apply some of these 3 ways to value a rental property in Fort Myers and compare it to the asking price to figure out if it makes sense to you.
3 Ways To Value A Rental Property In Fort Myers
#1. Cash Flow Potential
To determine your potential income from a rental property, you need to consider both the gross rental income and the net rental income. Gross rental income is the total amount of rent you collect from tenants each month. Net rental income, on the other hand, is the amount of money you have left after paying all the expenses associated with the property.
Calculating your net income is crucial to understanding whether you’ll be cash flow positive, meaning you’ll make money each month after covering your costs. Ideally, you want to be cash flow positive as this will generate a steady stream of income. There might be situations, however, where a temporary negative cash flow might be strategically acceptable. For instance, if you are undertaking major renovations that will increase the property’s value and future rent in the long run.
Have you seen our list of cash flowing rental properties? Click here and fill out the form to check them out.
#2. After Repair Value
evaluating the after repair value (ARV) is crucial when considering a property from a distressed seller. Let’s break down this process further.
Imagine you encounter a house listed at $75,000. The seller might be motivated to sell quickly due to their circumstances. By estimating the ARV, you can envision the property’s potential value once repairs are complete. In this example, suppose the ARV is $100,000. Here’s where the math comes in: to turn a profit, the repair costs must be lower than the difference between the ARV and the asking price. If repairs cost $25,000, subtracting that from the profit leaves you with nothing. In such a scenario, you’ll need to consider negotiating a lower asking price to make the investment work for you. This way, the remaining profit after repairs can justify your purchase. By carefully calculating the ARV and repair costs, you can make informed decisions when encountering deals from distressed sellers.
#3. Value To Tenant
This is a surprising and often overlooked way to value your property – what is the value of the property to a tenant? If you buy a low-priced rental property but then learn that it’s far away from anywhere that a tenant wants to live, the property might not be a good investment. So look at the location of the property in proximity to work, shopping, etc., to help you determine whether a tenant will want to stay in your property and how much they’ll pay.
Summary
If all this seems complicated to you, here’s the great news! You can actually skip all the calculations and estimates and just talk to us. We have rental properties with a lot of these numbers crunches already… plus many of them are already cleaned up, fixed up, and ready to rent (some are even rented).
We believe there isn’t a faster way to invest in real estate in Fort Myers.