How much rent should you charge on a rental condo?

Do you have rental properties?  Are you considering purchasing a condo as an investment property?

If you are considering buying a condo as a real estate investment, one of your many considerations should be the amount of rent you will charge each month.   A successful investment property will charge enough rent to cover the following:  

  • Mortgage payment
  • Insurance payment
  • Any included utilities
  • Common expense or association fee payment
  • An amount for maintenance
  • An amount for vacancy
The bottom line is that you, the investor, do not use any of your own money each month to cover the expenses of your investment.  In fact, once the rental payment has been received by you and all of the expenses have been paid, there should be some money left at the end of the day.  

The mortgage, insurance, and common expense payments are fixed amounts and easy to calculate.  If any utilities are included, the best way to estimate this cost would be to calculate the total utility payments for the previous year and divide by 12.  This amount should be covered each month by the monthly rent. 

The maintenance and vacancy amounts are a bit more difficult to calculate.  If you want to allot a fixed amount per month for incidental repairs and maintenance, add that amount to the monthly rent.  With respect to the vacancy amount referred to above, this refers to the number of months your unit may be vacant each year.  If a new tenant will move in each year, you may experience a vacancy rate of 1 month each year, if the tenancies do not run together.  If you think this will be the case, divide the rental amount by 12 and add this amount to the rent.  

Here is an example of the minimum amount of rent to be charged for a condo that was purchased for $250,000.00 in order to cover all potential expenses:  

Mortgage payment: $1,163.21 Based on $200,000 mortgage @ 5% interest

Insurance payment: $0.00 Tenant has own contents insurance

Utilities: $0.00 All utilities are paid by tenant

Common expense payment: $220.00

Maintenance: $100.00 Based on $1,200 per year

Vacancy amount: $123.60 Based on 1 month per year vacancy  

Total minimum monthly rental payment: $1,606.81  

Charging a minimum rent of $1,606.81 will easily cover all of your monthly expenses and your investment property should carry itself.  Once the mortgage has been paid in full, this monthly amount will become part of your profit on the investment property.  Once you have a few investment properties without mortgages, it is easy to see how you would have a very attractive monthly income from your condo investments.  

Happy investing!

Posted Friday, January 01, 2010 by Condo Hotline
Tags: condo rental,rental property,investment property