If you are looking to improve your financial situation by bolstering your investment strategy, you’ve likely considered investing in real estate. In fact, many popular television reality shows sell real estate investment as a quick way to gain some passive income. While it’s true that rental property investment can prove to be a profitable venture, it’s important to remember that the initial decisions behind the scenes are crucial.
To help you decide whether investing in rental property is a move you should make, we’ve compiled a list of three things you should consider first:
1. How Are Your Finances?
First, remember that you’ll be making a long-term financial commitment—a secure investment into a rental property requires you to tie up a significant amount of money that you won’t need to access for a while. Failure to realize that income only materializes after you’ve put forth your time and money can wind up putting you in a precarious position if you can’t afford it.
It’s crucial to ensure you can cover your personal expenses as well as any emergencies that may arise. In addition, you’ll need to set aside a maintenance fund for your rental property to cover expenses such as a new roof or HVAC. If you’re unsure about your ability to preserve these emergency and maintenance funds, now may not be the right time to invest.
2. Do You Want to Put in the Work?
Much has been made about how effective rental investments are at providing a passive stream of income for the investor. However, you’ll have to put in a serious amount of legwork to get a tenant into your property. Whether that means completely renovating the property on your own or ensuring your property listing is attractive to potential tenants, many investors describe rental income as anything but “passive.”
Similarly, after a tenant is in place, you’ll become a landlord—responsible for maintenance and other realities of owning a rental property. You’ll also need to take action when a property is vacant to ensure your stream of income remains uninterrupted. Often, the best option is to hire a property manager to handle both aspects for you.
3. Does Your Investment Have Potential?
Even after you’ve determined you can afford to make a real estate investment, the key is to find a property that will make you money. To determine your operating costs and the expected return on your investment (ROI), you’ll need to justify the investment in the first place. Think about what condition the property is in; do you have the cash flow to supplement a renovation, or should you look for something more turnkey?
Are there good schools and amenities nearby? If the property has been a rental for a while, it’s a good idea to ask the current owner about its performance as an investment, whether the property rented well in the past, or if it tends to sit for a while between renters.
Make Your Decision an Informed One
Rental investments have the potential to be a lucrative source of income. These three considerations are essential for any DC-area investor before making an investment decision.