Owning a rental property in addition to your primary residence can be a way for you to build wealth, especially if you may be averse to investing in the stock market.
With a rental property, someone else pays your mortgage, and over time your equity grows.
So, before you decide to invest in a rental property, consider calculating the return on your investment to see if investing in a rental property is really the deal you thought.
How to Calculate the Return on Investment of a Rental Property Like any investment, you need to understand the expected return on investment (ROI).
Before you can calculate the true ROI of a rental property, you have to factor in all the costs associated with holding that property, not just the purchase amount.
And remember, property taxes don’t typically stay the same each year.
In addition, this calculation should be done for every year you anticipate owning the property, as your return will change over time.
Conclusion Rental properties can generate income, but the return on investment doesn’t typically happen right away.
As with any investment, rental properties should be viewed as a long-term investment, not an instant cash cow.
Paul Sydlansky, founder of Lake Road Advisors LLC, has worked in the financial services industry for over 18 years.