Measure Rental Property Potential

A successful rental property is measured with several metrics rather than rental income alone. In this Edmonton, Alberta example, the purchase price is $400,000 and the 20% down payment is $80,000, leaving a $320,000 mortgage before other costs. The financing assumptions are a 4.50% interest rate and a 30-year amortization. Under these assumptions, estimated principal-and-interest payments are about $1,621 per month. This figure should be compared with the monthly rental income of $3,200, while also allowing for applicable operating expenses. Annual rental income is $38,400. Investors can use this information to examine cash flow, the cap rate and debt-service coverage. Cash flow compares income with mortgage payments and operating costs; cap rate compares net operating income with the purchase price; debt-service coverage compares net operating income with annual debt payments. A mortgage broker can help review how the down payment, rate and amortization affect the financing picture. Message me to review your options.