Numbers are everything when it comes to any financial investment, and that's true for real estate, too. A firm grasp of your figures can tell you much about where you need to improve and how to make more profit.
If you want to conduct a rental analysis on your property portfolio, there are a few key metrics you'll need to measure. Here are five metrics you'll need for the most accurate rental market insights.
1. Your Occupancy Rate
The first bit of data you need for any real estate analysis is your occupancy rate. That's the percentage of your properties that are currently rented. If you only have one property, you may want to look at the percentage of days per year it's had a tenant.
Occupancy rates tell you a story about demand.
High rates indicate a flourishing property market, where finding a tenant is easy. Low occupancy rates tell you that something is going wrong with your rental. Perhaps that's low demand, or you're setting your price too high.
2. Average Rental Rates
The average rental rate is the price charged in a specific neighborhood. You should always compare similar properties to get the most accurate figure.
This average will help you set a competitive price for a new property you intend to list on the market. It will ensure you aren't pricing too high, which could leave you with an empty property or pricing so low that you lose out on potential profit.
3. Rent-to-Income Ratio
The rent-to-income ratio is a helpful way of understanding whether your property is affordable to tenants. It measures the rent a tenant pays as a proportion of their monthly income.
It's a vital measure because overburdened tenants are more likely to create issues like late or non-payment of rent. Plus, you could face a high turnover of tenants because most people in the neighborhood can't afford your property.
4. The Capitalization Rate
The capitalization rate is calculated by dividing the income from your property by the current market value. It tells you how profitable your property is and whether it delivers a high investment return.
It's a valuable tool if you plan on buying more properties in the area and evaluating properties you've already purchased. Generally, investors want a high capitalization rate for all their properties.
5. Tenant Turnover
A high tenant turnover tells you several things. It is an indication that you need to do more to look after your tenants, and it also suggests stressors are impacting them, like a rental rate that's too high.
The tenant turnover rate is the percentage of tenants who moved out of your properties in any period. If yours is high, you must focus on some new tenant retention strategies.
Using Rental Analysis to Grow Your Real Estate Business
Improving your real estate business doesn't happen by chance. It takes a dedicated commitment to examining the numbers, and these five metrics are the perfect starting point for your rental analysis.
Legacy PM Inc. has over 30 years of collective experience in real estate, and we know what it takes for landlords to make money. Find out how we can help you maximize your Burlington property portfolio with the most effective rental strategies by heading here.