As the saying goes, if you fail to plan, you plan to fail. Creating a clear and credible financial plan that outlines your real estate investing goals and how you are going to achieve them will help to get the funding you need for your endeavors. In your plan, include how you will buy, maintain and exit your real estate investment.
Buying Your Investment
What type of property should you choose and where should you buy? When learning from the experiences of real estate investors, you may find that those who are successful tend to select a niche market or area that they are familiar with and have a good understanding of the going rental rates.
We all know that the first rule of Real Estate is location, location, location. It’s important to keep this in mind when searching for your investment property. Aim to buy in an area with low crime and moderate property values. Keep in mind that schools will also be extremely important.
Research the historical property values in the area to see pricing trends. This may help identify a property with growth and good rental income potential. Also, check local rental rates to see if the rental numbers work in relation to your finance payments. Are you planning to finance the purchase? Have your mortgage broker run numbers ahead of time so you know what your payment will be. With this information you should be able to project out your returns. Be sure to include maintenance, vacancy, marketing, management fees, etc. in your projections.
Once you’ve pinpointed your area, now investigate what amenities and/or features renters in that area specifically desire. Take note of the current rental properties that are renting quickly and the ones that are sitting vacant. If you plan to use a property management firm to manage your investment, now’s the time to engage their expertise. A good property management firm should know exactly what is and isn’t renting in the area, and be able to help you create a list of desirable features for your rental investment property.
Maintaining Your Investment
Will you be a do-it-yourself landlord or will you hire a property management firm to maintain your rental investment property? Before deciding, consider the time and work involved in maintaining a rental property. A property management firm can offer a variety of management services to save you time and effort, usually in exchange for a monthly management fee.
Park Avenue Properties offers full-service and procurement only management options. Full-service includes advertising and showing the property, collecting rental applications and screening rental applicants, drafting and executing lease agreements, collecting and depositing rental monies and security deposits, handling maintenance requests, performing property inspections, corresponding with renters and handling any legal or miscellaneous issues that may arise at the property.
If you prefer to be your own landlord, a procurement only option offers advertising and showing the property, as well as rental application collection, renter screening and lease drafting and execution. Once these services are complete, management of the property is turned over to you for the duration of the lease term.
Exiting Your Investment
Rental property is a long term investment and typically, it is a great one, whether the market goes up or down. As long as you’ve done your due diligence before you made your investment, you should be well equipped to survive the highs and lows. However, this doesn’t mean you should not have an exit strategy in place before entering into an investment. Always have a way out.
A usual exit strategy with rental property would be to sell the home in the future, or to pass it on to your children. If you decide to sell, understand the tax ramifications of doing so. If you plan to pass your investment on to your children, make that transition easy for them. Discussing your exit strategy with your CPA or estate attorney may provide clarity on the best path for you to take with your investment.
Have you outlined your real estate investment goals? We would love to help you achieve them. Contact us with any questions on buying and maintaining investment properties.
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