How to Measure the Financial Success of a Rental Property in Nashville TN
Owning a rental property in Nashville can be extremely lucrative and highly profitable. But, it’s also possible to generate some pretty devastating losses, especially if you’re making expensive mistakes without realizing it.
It’s important to measure the financial success of your rental property. Knowing exactly where you stand will help you make better decisions. But, how do you measure that success? We have a few different ways that you can look at your earnings and expenses to determine whether your investment home is performing as well as you want it to.
Rental Income and Cash Flow
Getting the highest rent doesn’t necessarily mean you’re earning the most income. But, a good starting point for evaluating your financial success is by looking at your rental income over a period of time. If the rental value of your property has been going up over the years and your expenses have stayed the same or even decreased, then you know you’re making money. Conduct a review of the local market and do a comparative rental analysis so you’ll know if you’re bringing in rents that are consistent with other similar properties in your area. If you’re lower than other homes, you’ll know it’s a good time to bring the rent up to the market norms.
Take a look at whether you’re maximizing other income sources. If you allow pets, are you collecting pet fees? Are you building your own expenses like HOA fees, professional landscaping, or pool care into the rental amount? When you’re evaluating your financial success, you have to make sure you’re earning as much as you can.
Vacancy Rates and Turnover
Take a look at your vacancy and turnover rates. This is important because you might think you’re doing great due to the high rents you’re collecting. But, if it took you four months to find a tenant willing to pay a higher rent, you’ve actually lost money. Account for every vacant day and make sure you can see how that impacted your income. Think about turnover as well. If you’re losing a tenant every year and spending money to improve the property and get it ready for the next tenant, you’re probably spending more money than you realize. You cannot be financially successful with your rental property when your turnover and vacancy rates are high. And, both factors are directly related to your pricing regime. If you are priced too high, the vacancy rate goes up both on the front end (leasing period) and backend (move-outs). More sophisticated tenants know what the rent amount should look like. If it’s priced too high during marketing, they will tend to shy away. In the event they do commit at the high rate due to perhaps urgent need on their end, they are VERY unlikely to stay when their lease expires.
Maintenance Budgets and Expenses
Every rental property is going to require maintenance, and those repair costs should be budgeted. When you’re looking at your financial success, however, it’s important to consider whether your maintenance costs are coming from preventative maintenance or emergency maintenance needs. Spending a couple hundred dollars every year having your HVAC system inspected and serviced is a much better investment than spending $5,000 on an expensive air conditioning fix in the middle of a hot summer. It’s not bad to spend money on maintenance, but it is bad to spend money on deferred or unreported maintenance.
There’s a lot more to look at when you’re trying to figure out how well your Nashville investment property is performing. We’d be happy to help you look at the numbers and set up some benchmarks. Contact us at Omni Property Management.