At least 10 rental properties are needed to make 100k a year, depending on factors such as rental income, expenses, vacancy rates, and financing.
Rental properties are a popular means of generating passive income, but many wonder how many properties are needed to earn 100k a year. In this blog post, we will explore the factors to consider when making this calculation and provide tips and strategies for achieving this financial goal.
Factors to Consider to Make 100k a Year with rental properties
When calculating how many rental properties are needed to make 100k a year, several factors need to be considered. These factors include:
Average Rental Income in the Area
The rental income you can expect to receive from a property is one of the most crucial factors to consider. The average rental income in the area where your property is located will determine how much you can charge for rent. Higher rental income will mean that you need fewer properties to reach your income goal.
Expenses Associated with Rental Properties
Owning and managing rental properties comes with expenses such as mortgage payments, property taxes, insurance, repairs and maintenance, and property management fees. These expenses can significantly impact your net income, so it’s essential to factor them in when calculating the number of properties needed to earn 100k a year.
Vacancy Rates and Occupancy Rates
The occupancy rate of your rental property is the percentage of time that your rental property is occupied tenants. The higher the occupancy rate, the more rental income you can expect to receive. However, it’s important to consider vacancy rates as well, which is the percentage of time that the property is not occupied. When calculating how many properties you need, you need to factor in potential vacancies.
Financing and Taxes
Financing and taxes are other critical factors to consider when calculating the number of rental properties needed to make 100k a year. For instance, the mortgage interest rate, down payment, and loan term can impact your monthly payments and overall expenses. You should also consider tax implications such as property taxes, income taxes, and capital gains taxes.
Calculating the Number of Rental Properties Needed
Let’s take a hypothetical example to better understand how to calculate the number of rental properties needed to earn 100k a year. Suppose you’re interested in investing in rental properties in a particular area where the average rental income is $1,500 per month.
The properties you’re considering require a down payment of 20%, and you have $500,000 to invest.
Step 1: Calculate Monthly Rental Income
Suppose you purchase a property for $400,000 with a down payment of $80,000 (20% down payment). You rent out this property for $1,500 per month. Your gross monthly rental income for this property is $1,500.
Step 2: Calculate Monthly Expenses
Assuming that you have a 30-year mortgage with an interest rate of 4%, your monthly mortgage payment would be $1,518. Property taxes for this property are $300 per month, and you estimate repairs and maintenance costs to be $200 per month. Your total monthly expenses for this property are $2,018.
Step 3: Calculate Net Monthly Income
Subtracting your total monthly expenses from your monthly rental income, you get a net monthly income of $482 for this property.
Step 4: Calculate the Number of Properties Needed
To earn 100k a year, you would need a net monthly income of $8,333. Dividing $8,333 $482, you get 17.28. Therefore, you would need to own at least 18 rental properties to earn 100k a year.
here’s an example table that summarizes the calculation for owning a single rental property:
|Down Payment||20% of purchase price||$80,000|
|Monthly Rental Income||–||$1,500|
|Mortgage Payment||30-year mortgage, 4% interest rate||$1,518|
|Repairs and Maintenance||–||$200|
|Total Monthly Expenses||Mortgage payment + property taxes + repairs and maintenance||$2,018|
|Net Monthly Income||Monthly rental income – total monthly expenses||$482|
The number of rental properties needed to make $100k a year depends on factors such as property type, rental income, and expenses. Assuming an average rental income of $1,500 per property, approximately 7 properties would be needed. However, investing in rental properties comes with challenges and responsibilities. Therefore, careful consideration and planning are necessary before making such an investment.