Purchasing your first rental property is one of the biggest financial decisions you will make. And to make this purchase work out, you need to analyze your rental property. Did you know that that is possible in just 5 minutes?

If you want to maximize your investment, earn more income and get more negotiating power, you'll love this guide on analyzing rental properties.

Let's get down to business.

Look at the Acquisition Cost

On top of the purchase price, there are additional costs that you need to take note of and that is the acquisition cost. It is an all-in cost to purchase a property, and that includes appraisal fees, attorney’s fees, closing costs, and inspection. The closing costs vary on whether you are financing a deal or buying it cash and the cost can vary from 1.5% to up to 5% of the purchase price. 

Look for Property Taxes 

When looking at property taxes, make sure you pay attention to what exemptions are applied. Naturally, as an investor, you would not be able to qualify for them. So you want to make sure that you adjust the tax bill accordingly. Then go to the treasurer’s website, and search for the most recent second installment bill. That bill will have all exemption amounts listed. All you have to do is add those amounts back to the amount due. 

Find out how much revenue the property can bring you.

Looking at the pictures of the listing, whether vacant or rented, and hopping on Rentometer.com is a good move. If you are not yet familiar with Rentometer.com, it is a great tool to give you an idea of what the market rent is in the area. Rentometer.com  has a free trial report run and paid plans after that. But if you are on a budget, you must go for comparables on a website such as Trulia and Zillow with a 0.5-mile radius from the subject property to see how the actual rent compares in the area. Always compare apples to apples. Not only pay attention to the condition of the property but also what is included in the monthly rent.

Check if there are any additional income sources, such as parking fees or coin laundry.

For the expenses, you can typically factor in the 10% vacancy rate. You would want to take into account the lost rent during a unit turnover and the time it takes to find another tenant. 

Check for maintenance and repairs

For this, calculate another 8% to 15%, depending on the common area and condition of the property. Obviously, if it is a multi-unit property then the landlord or you as the future rental property owner, will need to budget more for the upkeep of hallways, laundry rooms, parking, etc. The same thing applies if the property is old. I usually budget for future repairs such as mechanical replacements, roof, and tuckpointing because you want to be prepared.

Find out if there are any property insurance

Talking to a local insurance agent, especially if you are out of town, is another great way of analyzing your rental property for each region that has its pros and cons. For example, in the state of Illinois, we have hail and flood coverage, while in California you have to worry about sinkholes and earthquakes. Therefore, premiums vary highly and a tough decision has to be taken into account.

Check if there are utilities

Examples of this are water, gas, electric, heat, sewer, snow removal, and landscaping. So, pay attention to what is paid by the landlord. Some landlords have zero utility expenses because they let the tenants cover for their own utilities, and on the other side of the spectrum some see landlords of old multi-family unit properties with only ONE  furnace or ONE water heater and they are the ones making a bad decision of covering for all those expenses. Sadly, what we can learn from this is that when the tenants are not the ones paying for utilities, they can care less if the faucet is leaking since they are not the ones paying for the water bill so why would they care? Be sure to save from having problems in the near future, if you care.

Always check if the property is part of an HOA (Homeowners Association)

Do this because you will never know, sometimes, depending on the amenities, assessments can get pretty high. Here is a quick tip, if you are considering buying a property that is part of a homeowners association, be knowledgeable and conscious of cross-examining the by-laws, rules, and regulations. There are many funky rules that you want to be aware of, plus, HOA, unfortunately, have a reputation of not being investor-friendly. 

Never miss looking at the admin fees

There will be fees such as rental licenses, village inspections, bank account fees, and set up fees for your company. They can quickly add up and eat your profit. So better, check this out and be prepared for your finances.

Check for property management fees 

Do this especially if you are planning on using a professional manager. Property managers strongly suggest exploring this option. And a great manager will pay for themselves many times over while saving you many headaches. With a property manager, you can leverage your time and resources to find new deals. 

Portioning your finances

This is the last piece of our puzzle. Think about this, are you going to purchase the property in cash or are you putting some money down and committing to the monthly mortgage payment? Depending on what interest rates, mortgages make or break deals all the time, so make sure you are not forgetting that expense. 

Conclusion

And now that we already have the basic data, if you follow through with these steps, we will surely be able to add up all of the income and subtract all the expenses from our rental property. And in turn, will be gaining the result which is your accumulated profit or the net income. Take note, real estate properties appreciate, however, that appreciation will not pay your monthly bills.

Real estate is a long-term investment that has to be secured financially over time. That is why above all, make sure you have enough income to cover the unexpected expenses and preferably have a reserve account that can float your rental for at least 3 months.

Always remember, when you start running your rental portfolio like a true CEO, you will set yourself up for success and will be able to scale easily to achieve financial success.