Understanding your rate of return when looking at investment properties in Worcester County Ma.
Arriving at a Rate of Return is an important factor to consider when looking at a potential property. Analyzing an investment property requires asking the owner pointed questions regarding income and expenses. Some of this information can be provided by your realtor, who has access to local tax records and listing sheet data. Income sources are generated by tenant rents and available services such as coin-op Laundromats. While including typically known expenses such as taxes, water, sewer, and utilities do not make the mistake of forgetting other items such as insurance, property management fees, vacancy rate, maintenance and capital improvement percentages.
if you purchase a property incorrectly without analyzing expenses you could end up in a financial mess. ROI is a popular metric because of its versatility and simplicity. It’s used to evaluate the profitability of an investment.
Total Income less expenses will provide you with your net operating income. Continuing with your analysis, your data should also include the total financial investment which includes your down payment, finance costs, and any acquisitions that were part of the purchase of the property along with your yearly mortgage costs. This data is necessary to ascertain your ROI.
For example, if a property costs $100,000 to acquire, and it generates $6,000 per year after all expenses, including the mortgage payments, property taxes, insurance, and maintenance costs, the ROI of this property is 6%. An ROI between 5% and 10% is considered acceptable. An ROI of over 10% is a good real estate investment.
The rate of return gives you an idea of what kind of return you will be getting on the amount you invested.
Everyone views real estate a bit differently. I look at it as a long-term ownership. The great benefit of ownership is having someone else make payments on the property for you. This is an additional benefit that does not show up on your ROI. This, of course, is what often drives the demand for investment properties.
The Central Mass area, Worcester in particular, offers lucrative opportunities for investors but that is contingent on mortgage rates and supply and demand factors. As we all know, supply and demand carries with it price variations on real estate.
The Worcester area continues to be a great place to buy rental properties. From the small to the large scale investor, the market here is hard to beat. However, that will change over time, as capital from larger markets such as Boston begin to see the great opportunities here.