Property Management FAQ

The Math Behind Investment Properties That Actually Pay Off

There’s a fine line in investment properties between a positive and a negative return. If you’ve been thinking about getting an investment condo that you can rent out, but haven’t done so yet, it might be because it’s intimidating to commit without fully knowing how the investment will turn out. 

There’s one classic rule that real estate investors abide by that may help. Like all general rules, it doesn’t work all the time, but it does work most of the time, and it’s worth thinking about. 

It’s called the 10% rule. Basically, for any property you’re considering, take your projected annual rental income, and divide it by the purchase price of the property. If what you get is greater than 10%, the property should generally be a good investment. The rule tries to estimate the ratio of home price to rent collected — in a word, you don’t want to pay too much for a property that you will not be able to collect sufficient rents on. 

In Chicago right now, using the 10% rule will likely mean a limited number of investment options. Rents have been on the rise in the city for nearly a decade, but they have not quite kept up with the rise in property values. 

But one of the key parts of an investment is not rushing the deal. Know what parameters you’re looking for, and then bide your time. When you do see the rare deal that falls within the right category, you don’t have to think about it too hard — just put in your offer. 

Have more questions about investment properties and how they’re managed? Get in touch with us to discuss!

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