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Investment properties can be a great type of passive income. From the tax benefits to the monthly income from rental payments, it is also one of the most secure investments on the market. However, it still takes hard work to begin seeing a profit. If you are considering a real estate investment, read on to learn what return on investment (ROI) and net operating income (NOI) mean for your property.

As a general rule of thumb, a good ROI for investment properties is above 10%. This could be lower depending on the level of risk you take. You can calculate ROI using a rental property calculator, but you will need to understand the following metrics first.

• Net Operating Income (NOI): This figure measures a property’s profitability before adding in costs from operating expenses, taxes, etc. It is calculated by subtracting all total expenses from all total income incurred from a property rental.
• Capitalization Rate (Cap Rate): This figure helps you compare which properties will be more profitable more quickly than others. It is calculated by dividing your NOI by the asking price or purchase price of the property.
• Annual Cash Flow: This figure is how much you will profit as the landlord after all mortgages, debt, and operating expenses are paid. It is calculated by subtracting debt from the net operating income.
• Cash-on-Cash Return: This figure shows the return you can expect from the funds you invest into the rental. It is calculated by dividing your after-tax annual cash flow by the purchase price of the property.

Another consideration for ROI is time. Your returns do not take place overnight. In fact, many recommend holding a real estate property for a minimum of five to ten years to allow for a full look at the ROI on a rental complex. Keep this in mind as you plan for your future and what this investment income will be needed for.

Investment properties are often a long-term strategy. While there may be some fluctuation in occupancy as the market ebbs and flows, you are in a very good position to see a strong return on your investment over time. One way you can directly influence this is through the management of your property. Happy tenants tend to stay longer in their rentals, which increases your occupancy and bottom line.

A great way to ensure your tenants have an excellent experience is by utilizing a property management service. This service provides you with a team of dedicated professionals who are able to handle the nuanced concerns of your residents without delay. Many real estate investors have full-time jobs and do not have the 24/7 availability residents desire. A property management company alleviates this by offering rental management, marketing, maintenance, and customer complaint resolution services. 

MMC Properties is a premier property management company in Middle Tennessee, serving the greater Nashville area of Smyrna, LaVergne, and Murfreesboro. To learn more about the services we offer, call (615) 849-9006 today.