The Math: How To Make $1,000 Per Month With Rental Properties

You hear the rumors - real estate investors are making $1,000 or even more a month just owning properties. You may wonder how they do it since investing in real estate costs a lot of money.

Not only do you need the money to buy the property, but then you have to maintain it, which costs money too. Is there really money in rental properties after looking at your operating expenses and the overall cost of owning a home?

There is when you do it right. You can make $1,000 or more a month, but you have to plan your strategy right. Here’s how to get started.

Know The Investing Rules

First, real estate investing isn’t a one-size-fits-all approach. So the rules we discuss here may or may not apply to you. Use them as guidance to determine if you should consider investing in a real estate property or at least a way to determine if you are on the right path.

1% Rule 

The 1% Rule is a guideline or a benchmark for you to screen potential investment property opportunities.

It’s not a make-it-or-break-it decision but one piece of the puzzle as you decide if an investment is worth your time.

Here’s how it works.

Monthly rent/Purchase price x 100

If it’s 1% or greater, the investment MAY be worth it, or it’s at least worth looking into.

For example, if you buy a property for $200,000 and the monthly rent is $2,000, it passes the 1% rule. But if the rent was $1,500, it wouldn’t pass the 1% rule. You can also use the rule to determine what mortgage financing is affordable and what isn’t.

Using our example above, if you secured mortgage financing on the rental property and the mortgage payment including taxes and insurance as $2,000, it wouldn’t make sense to invest in the property, but if it’s less than $2,000, you’d have positive net cash flow.

If a property passes the 1% rule, should you automatically invest in it? 

Not necessarily, but you should then consider the following:

• Is the area one that renters want to live?
• Is the home worth enough?
• Do you need to fix the home up, or is it ready to live in?
• Are there tenants in the property already?
• What are the average vacancy rates?
• What are the average real estate taxes and home insurance costs?
• How many days has the house been on the market?

50% Rule

The 50% Rule is another guideline. It’s not a hard and fast rule, but a way to help you determine if a property is worth it.

For this rule, take 50% of the proposed monthly rent, and that’s your estimated operating expenses. This doesn’t include the mortgage payment, property management expenses, or HOA fees.

The idea is for you to use this figure to determine if a property is worth it. For example, if you know you’ll get $1,200 a month for rent, you’ll pay approximately $600 a month in operating expenses. If you also need mortgage financing and there’s an HOA fee that would total to more than $600, you wouldn’t have a positive cash flow, and the property isn’t worth it.

But, if you can pay cash or secure financing that will cost less than $600, it may be worth it, but again, you should consider all the factors we discussed above. The money is just one piece of the puzzle (although a large one).

80% Rule

The 80% Rule applies to properties you buy at a lower value and will fix up. It may be a fix and flip, or you may fix it and rent it out - the choice is yours.

To decide if the property is a good investment, first look at the total sales price (the amount you’ll offer) plus the costs to repair the property. If the total of these two figures is less than 80% of the home’s fair market value, it’s a good investment. If it’s more than 80% of the fair market value, you may want to look for another property.

The key in investing in rundown properties is to buy the property for much less than it’s worth, fix it up, and make a profit. Even if you rent the property out, you want to start off with a positive cash flow since you know the property will cost you money to maintain, repair, and own through the years.

What Does It Take To Make $1,000 Per Month On Rental Properties?

After you decide to buy a property, the bigger question is, how do you make $1,000 a month on them?

You know there are many fees involved in renting a property, and no one will pay more than the average market rent for the area on any rental, so how do you make it worth your time?

Using a combination of the rules above, looking at the individual factors of the home, and looking at your overall financial picture, you can determine how to make $1,000 per month on rental properties.

For example, you may not make $1,000 a month on one property, but the net cash flow can add up to $1,000 or more per month if you have a portfolio of properties.

It depends on how you buy the properties, what they cost, and the rent you can charge. If you finance the properties, you have a much larger expense to figure in each month than someone who pays cash for properties.

Before you determine how to make $1,000 a month on rental income, figure out how you’ll buy properties. Will you stick to the lower end and buy properties for cash? Roofstock Marketplace is a great place to find affordable rental properties. Would you prefer to buy higher-cost homes and take out a mortgage?

This is the first determining factor in how and if you can make $1,000 a month on rental properties.

Next, figure out the costs.

What Is The Home’s Purchase Price?

Start with the home’s purchase price. This helps you use the 1% rule and decide if you need mortgage financing, both of which are essential factors.

If you find a home for $200,000, ask yourself, can you pay cash, or do you need financing? If you need financing, the payment comes right off the top of your rent. You’ll need more properties to hit that $1,000 a month in rental income benchmark.

Regardless of the financing, look at the area’s rent. Can you charge at least $2,000 for rent? If not, the property may not be worth it. Keep that in mind as you look at the big picture. You may find other reasons the property is a good investment, but if you can’t get 1% of the purchase price in rent, you may want to look elsewhere.

Let’s say you find a property for $100,000, and the average rent in the area is $1,200. You hit the 1% rule, and you may increase your monthly cash flow, making it easier to hit the $1,000 goal.

What Are The Operating Expenses?

Using the 50% rule above, you need to know the home’s operating expenses. Are they 50% or more of your rent? 

Operating expenses include maintenance, repairs, property taxes, insurance, utilities, and any reserves you keep on hand to cover the property’s maintenance and repairs. On top of those numbers, you’ll have to include property management expenses (usually 10% of the gross rent), HOA fees, and any mortgage payments.

If you keep 50% of the rent and you charge $1,000 in rent, that’s $500. You’d need 2 properties to make $1,000 a month. But if you have properties with much higher operating expenses, leaving you with only $100 - $200 a month, you’ll need 5 - 10 properties in your portfolio to hit $1,000.

Are You Buying With Cash?

This is a big determining factor in how and when you’ll make $1,000 a month on rental properties. If you buy with cash, you don’t have a monthly mortgage payment, mortgage insurance, or mortgage fees.

You’ll use a large part of your cash assets to buy the house since you won’t leverage it with financing, but then your major capital expenditures are complete. You then earn money back with monthly rent. You should still use the 50% rule, assuming your operating expenses (without a mortgage) will be 50% of the rent charged, but you can use the number to determine how many homes you need in your portfolio to hit your $1,000 goal. 

Diversify Your Investments

The key to reaching your $1,000 a month goal in real estate investing is to diversify. You’ll need more than one property to make this much each month, but that doesn't mean investing in multiple properties in the same area.

Using a site like Roofstock Marketplace, you can invest in properties all over the US. This gives you ample opportunity to buy low-cost properties in high-rent areas. You aren’t stuck just finding properties in your area. With help of property management companies, you can diversify your real estate investments all over the country. 

Should You Invest In Rental Properties?

Whether you can make $1,000 a month or not, the bigger question to ask yourself is ‘should you invest in rental properties?’

Not every area is meant for investing - some areas have more homeowners than renters. Doing your due diligence to find out the average rent in the area and the average net cash flow is key. This can feel like a lot of work, but with a platform like Roofstock Marketplace, you have all the information you need at your fingertips.

It’s free to join Roofstock, and you can even browse properties for free. The platform provides more information than you’ll find anywhere else, helping you to make an investing decision. 

Before you do that, though, ask yourself the following questions:

• Are you able to maintain a property? As the landlord, all repairs and maintenance are your responsibility. If you hire a property management company, estimate 10% of the gross monthly rent to cover the costs.
• Do you have the capital to cover repairs and maintenance? Repairs and maintenance may cost an average of 1% of the purchase price annually. Do you have enough reserves to cover even larger expenses?
• Are you ready to tie up your assets? Real estate isn’t a liquid asset. You should invest in it for the long-term for the best financial results. If you think you’ll need the assets quickly, investing in real estate may not be the best option.

The Bottom Line

Investing in real estate can be a lucrative way to grow your investment portfolio. Whether you’re investing to save for retirement, to increase your monthly cash flow, or for another financial goal, there are many ways to make $1,000 a month in rental income.

The key is to do your research, have professionals helping you, use a reputable platform to buy and sell properties, and do your research. It’s a lot to take in, but once you start, you’ll see how easy it is, especially when using a platform like Roofstock Marketplace.

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