Annual return measures how much money, or profit, is made on a property as a percentage of the cost of that investment.
What is Annual Return on Rental Property?
Annual Return on rental property is a financial metric that measures the return on investment for a real estate rental property over a one-year period. It takes into account both the rental income and the expenses associated with the property.
The calculation of annual return on rental property involves subtracting the total expenses associated with the property from the total rental income, and dividing the resulting figure by the total investment in the property. The resulting percentage represents the annual return on the property.
Formula: (Total Rental Income – Total Expenses) / Total Investment = Annual Return %
For example, if a rental property generates $30,000 in rental income over a year and has $10,000 in expenses (including mortgage payments, property taxes, insurance, maintenance, and repairs), and the investor has a total investment of $250,000 in the property (including down payment and closing costs), then the annual return on rental property would be 8% ($30,000 - $10,000) / $250,000.
The annual return on rental property is a useful metric for real estate investors to compare the performance of different rental properties, and to evaluate whether a rental property is a good investment opportunity. A higher annual return on rental property indicates a more profitable investment.
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