San Diego investors are often asking what they can earn and what they will have to spend when they have a property to rent out. This is a quick and dirty way to figure out what your property will rent for and cost you.
Get a professional market analysis done. A professional property manager will have access to comps and the MLS, which shows what properties actually rented for. This is more valuable information than what’s available to the public, which is simply what’s available on the current market.
Looking at what people are asking is important, but it’s not the same as what people actually get. If you copy your neighbor’s rent amount just because your property is similar to theirs, you may be copying a failed strategy. So get good data on comparable properties.
Calculating Net Income
Once you figure out what your rent is, multiply it by 12 months of the year, and then multiply that number by four percent, which is the current average vacancy rate in San Diego. If you want to be more conservative, do eight percent, which is one month of vacancy per calendar year. So if your tenant leaves every year, the property will be vacant one month per year.
Subtract $2,000 from that amount for make ready costs. That’s the average cost of repairs to make your home rent ready. On average, the cost is $2,000. That might sound high, but it is the average. If your property is in great shape, it might be less. If it needs major repairs, it may be more.
If you’re hiring a property management company, you’ll want to deduct those fees as well. The average in San Diego for property management is between 8 and 10 percent every month. Once you subtract those, deduct your PITI payment – principle, interest, taxes, and insurance.
For most of us, that’s just the mortgage payment you scratch to the bank every month. If you don’t have your insurance and taxes included in that payment, add those on top with any HOA fees.
You’ve got your income minus your expenses, which will give you a net income before maintenance costs. For ongoing maintenance, set aside $50 per month for a normal house or condo in good shape. For an older or bigger house with deferred maintenance, save $150 a month. You don’t have to expect you’ll spend that each month of course, but if you put the funds away, you’ll be able to access them when you need them.
To find out what your home can rent for in your neighborhood, get your free instant rental report below!