To be a rental property investor, you need to be able to equip yourself with the necessary information to make that first single-family rental home a success. By making time to become acquainted with the basics of rental property investing before entering the Shepherd Park market, an investor can gain a significant footing. By learning about the five key things that rental property investors need to know, you can quickly get yourself on the path to property investing success.
1. Plan Ahead
Investing in Shepherd Park rental properties necessitates a great deal of up-front planning. Heading into the real estate market without a precise sense of what your intentions are and which actions you need to exercise to get there is a sure route towards being ineffective and pointlessness. Lay out your purposes by writing down your objectives, which should include a long-term investment plan.
Case in point, you could ask yourself questions such as: Are you more concerned about long-term appreciation or cash flow? Are you planning to occupy the property at any point, or is it purely an investment? If your goal is to generate $5,000 a month in retirement income, you’ll need a clear strategy and a multi-year plan to get you there.
You will also need a specific strategy to generate the funding you need for ongoing expenses. Other than the down payment and closing costs, there are operating expenses, property taxes, insurance, and other costs that must be paid each month.
While the plan is to structure your rental property so that your rental income covers both your mortgage payment and these costs, that may not always be the case. Certain months may see a negative cash flow due to vacancy, large repairs, or other unexpected expenses. One way to prepare for the unexpected is to set aside a percentage of each month’s rental income into a separate “contingency fund” account. That way, you’ll never be caught without cash on hand in a difficult situation.
2. Understand Risk vs Return
In the rental real estate market, there is a connection between risk and return. Investing in real estate is a moderately low-risk option for investors. Nevertheless, there are risks associated, and typically, the highest returns simply come with the highest risk. As a rule, rental homes in less fancy neighborhoods offer the highest potential yield but are also riskier because of the inherent volatility of such areas. More upscale neighborhoods, though, may not have that volatile nature but will be a much higher up-front investment and will cater to a much smaller percentage of renters. Determining where your investment comfort zone is in advance can help make your hunt for property much quicker and more effective.
3. Know Your Renter Demographic
Along with property type, you will have to make a decision concerning who will be your target renter. It is common sense that not all rental homes will appeal to all renters. For instance, Millennials and young professionals favor preferences and values different from what other kinds of renters like. Try to look at prospective rental properties through a renter’s eyes and see whether you can discover to which set of tenants it might appeal to most. Once you know who the renters are in your market, you can shop for a property with their needs in mind.
4. Organize Your Business
Investing in rental properties is a business. Separating your investing from your personal life is an important part of making sure you have the systems you need in place for long-term success. For example, at a minimum, investors should have a separate bank account for their rental property business, as well as a money management app or software to help them keep track of it.
Make certain that you categorize your expenses, especially if you have more than one rental home: you’ll need individual income and expense numbers complete for each property as soon as tax time rolls around. Documents, invoices, and other paperwork should be organized into folders, either digital or on hard copy. This can make finding information much less of a headache.
When planning your business, envision that you are the CEO. That means that you’ll need to have a system in place to delegate time-consuming tasks to a team of trusted professionals. A property manager, real estate agent, and a lender are essential. Most investors also have a lawyer and a trusted contractor or two on their team as well.
5. Adjust Your Outlook
Perhaps the key concept when studying real estate investing is that it is a race, not a short-term dash to the end. The profits will grow, but only if you remain hardworking in the long run. Not every month will feel like a triumph, but with patience, information, and a solid strategy, you can weather any market fluctuations and come out ahead in the end.
While nothing can help a rental property investor more than experience and information, having the right support could be a game-changer from day one. At Real Property Management Washington DC, we help investors negotiate the challenging terrain of Shepherd Park property management. Our systems and innovative approach to property management ensure that once an investor has taken the first steps into rental property investing, the many years of ownership to come are as smooth and profitable as possible. Contact us or call us at 202-813-9993 for more information.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.