POSTED ON Dec 16, 2021 10:00:00 AM / by Real Property Associates

What Kind of ROI Should Owners Expect for a Rental Property In 2022?

Looking into 2022, rental property investors may be wondering where to put their money next. With the cost of homes rising, knowing what kind of ROI you can expect from your investments might be an urgent question on your mind.

Property owners need to get the most out of their investments (sooner rather than later) and hope for appreciation in the future—but real estate market changes (and surprises) over the past couple of years have created plenty of questions for property owners in Seattle. Today, the best property management company Seattle, WA, has insights into potential ROIs and how property owners can build long-term success through real estate investing! 

What ROI Is Decent for Rental Properties?

Whether you've been investing in rental properties 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.

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In 2022 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.

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, 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, then 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. 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. 

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Optimizing ROI Requires More Than The 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 works by dividing the operating expenses by the property's purchase price. However, no matter which calculation you rely on to estimate potential returns in 2022 and for the lifetime of your real estate investments, optimizing ROI requires more than the right rental rate. 

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! Work with the best property management company Seattle, WA, offers to generate returns that meet your goals in 2022 (and beyond). 

Hire a Seattle Property Management Company To Boost Returns in 2022

Set yourself up for success with professional property management services in the new year! Search for the best "property managers near me" and choose a partner that listens to your goals while applying expert strategies for your long-term success. 

Real Property Associates 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.