What Rental Property ROI Should Owners Expect in 2023 and 2024?

What ROI Is Decent for Rental Properties?

Whether you've been investing in rental properties for a long time or just getting started, your ROI should be in a range that is feasible to pay ongoing operations expenses, plus help you reach your long-term income goals. No matter if your properties are in Class A, B, or even C neighborhoods, you can bring in a decent ROI if you know what to expect and how to manage investments effectively.

In 2023 and beyond, real estate professionals from top rental management companies suggest aiming for an ROI between 8% and 12%. So, how can property owners estimate potential returns for new properties and manage rentals to deliver on those returns? A property manager can help you determine whether you should dive into an investment or not.

You can also apply the strategies we'll talk about next!

Use the 1% Rule to Determine the Potential of An Investment

Some investors use the 1% Rule to estimate if a potential investment property will be worth it. By implementing the 1% rule, property owners can estimate that the amount of rent collected will cover ongoing expenses and generate an optimal ROI. 

Simply put, the 1% rule states that you should collect at least 1% of the final property purchase price through the monthly rent amount. In competitive markets like Seattle, a property manager can advise you about the ideal rental rate to help you find good renters without lengthy vacancies. 

As an example, if your investment property purchase price was $200,000, the monthly rent should be a minimum of $2,000. Calculate this number by multiplying 1 % by the price of the property.

However, some property management companies suggest adding costs for upfront repairs or upgrades when performing the calculation. So, if the house costs $200,000, but you spent $5,000 for repairs, the "one percent" rule calculates $2,500 for rent versus $2,000.

What About the 2% Rule?

If charging 1% or rent is good, then 2% must be better!

Some real estate investors base their target returns on the 2% Rule instead of estimating success at 1% of the property's costs. This calculation simply substitutes 2% instead of 1% to estimate returns.

So, using our example above, if the property price was $200,000, the formula estimates $4,000 a month for rent. While this might sound like a hefty amount to charge for rent, the 2% Rule factors in your operating costs, interest, and other expenses, so you are sure to make a profit from a property.

However, property managers are the best experts to consult when considering the ideal monthly rent amount for the market. When the rent is too high, property owners struggle to find good tenants and deal with lengthy vacancy times that can damage returns. So, a property manager can help you determine if estimating based on 1% vs. 2% is the better option to generate the rental income you need and keep the property occupied with good tenants.

Optimizing ROI Requires More Than Setting the Ideal Rent Amount

There's one more calculation a rental property owner can use to determine if an investment is worth your while.

The Cap Rate rule divides the operating expenses by the property's purchase price. However, no matter which calculation you rely on to estimate potential returns in 2023 and for the lifetime of your real estate investments, optimizing ROI requires more than the right rental rate. 

You Need Management Best Practices for Success

A property management company will tell you that maximizing returns requires consistent best practices to keep tenants happy and reduce vacancies.

Start by setting the ideal rental rate, then make sure you apply the right strategies for success, including:

• Tenant screening to place quality renters

• Convenient methods for tenants to pay rent

• Offering pet-friendly rental properties

• A proactive approach to routine maintenance, property inspections, and repairs

• Being a good, responsive landlord to improve the renter experience

When residents renew leases, pay the rent on time, and never cause costly property damage, real estate investors experience better returns!

How Can a Property Manager Help Improve Your Returns?

If you've run the numbers and a property isn't generating at least an 8% ROI, it's time to make adjustments to the rental rate, your management processes, or both.

First, the rental rate you've set might not be aligned with the current market demand. Adjusting this can often have immediate positive effects on your returns.

Additionally, there could be gaps in your management processes. This encompasses tenant screening, maintenance schedules, and how you handle tenant communications and complaints. Streamlining these can reduce expenses and enhance tenant satisfaction, leading to longer lease durations and fewer vacancies.

If you're not sure how to adjust the rental rate appropriately or improve your operations, work with the best property management company in Seattle to generate returns that meet your goals in 2023 (and beyond). Property managers have proven processes and insights into ensuring the monthly rent amount is in that "sweet spot" to attract good tenants and generate the cash flow you need.

Hire a Seattle Property Management Company To Boost Rental Property ROI This Year

Set yourself up for success with professional property management services this year (and next)! Search for the best "property managers near me" and choose a partner like Real Property Associates who listens to your goals while applying expert strategies for your long-term success. 

Our team is here for you! Reach out to learn how full-service property management helps property owners experience better returns. 

Find your rental property ROIs! Use our free Investment Property ROI Calculator.