Step 1 - Discover the Revenue Potential of the Property
For a rental property to have a positive monthly Cash-on-Cash Return (CCR) or Return On Investment (ROI), it must generate revenue or be re-sold for a profit. To calculate the monthly revenue a property can produce, simply determine a reasonable rate you can charge per room and multiple this by the number of rooms in the house. If the rental property is more likely to be rented as an entire unit rather than on a room-to-room basis, determine what the reasonable price is for this. Also include revenue that can be made off renting a detached garage.
There are three ways this information can be obtained:
1) Look at rent ads for properties in the same area with a similar layout
2) Ask the seller what they are currently getting in rent money (if it is currently a rental unit)
3) Place a fake ‘for rent’ ad in a free real estate publication and see if you get any call back at the rate you would like to charge