There are a lot of different things that a rental property investor needs to figure out to make that first single-family rental home a success. By setting aside time to get educated with the essentials rental property investing before jumping into the Frederick market, an investor can give themselves a great start. 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 Frederick rental properties involves a ton of up-front planning. Delving into the real estate
market without a definite idea of what your goals are and what measures you ought to practice to get
there can leave you without any work accomplished and overwhelmed. Outline your goals by writing
down your objectives, which must include a long-term investment plan.
For example, 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 similarly need a foolproof plan to produce 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 idea is to structure your rental property with the purpose that your rental income covers both
your mortgage payment and these costs, that may not always be the case. Some months may see a
negative cash flow due to vacancy, large repairs, or other unexpected expenses. One tactic to follow to
avoid being trapped because of an unforeseen emergency 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 unprepared
without cash on hand in a critical moment.
2. Understand Risk vs. Return
In the rental real estate market, there is an indisputable connection between risk and return. Investing
in real estate, overall, is a reasonably low-risk option for investors. Nevertheless, there are still risks
identified with it; and typically the highest returns only come with the highest risk. Usually, rental homes
in more affordable neighborhoods offer the highest potential yield but are also riskier because of the
inherent volatility of such areas. More expensive neighborhoods, in comparison, 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. Picking where your investment comfort zone is from the get-go can help make
your property searches more immediate and more productive.
3. Know Your Renter Demographic
Along with property type, you’ll need to choose early on about who your target renter is. It is common
sense that not all rental homes will appeal to all renters. For example, Millennials and young
professionals tend to have dissimilar priorities and values from what other categories of renters have.
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 private life is an integral
part of assuring that you have the tools you need in position for enduring success. For example, at a
minimum, investors should have a separate bank account for their rental property business, along with a
money management app or software to help them keep track of it.
Make sure to categorize your expenses, especially if you have more than one rental home: you’ll need
individual income and expense numbers ready for each property once 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.
During the planning stage of your business, keep in mind 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
Possibly the most powerful information to retain concerning real estate investing is that it is a marathon,
not a short-term spring to the end. The profits will happen, but only if you remain steady in the long run.
Not every month will feel like a triumph, but with endurance, learning, and a solid strategy, you can
endure any market fluctuations and come out triumphant in the end.
While nothing can support a rental property investor more than expertise and information, having the
right backer could be a game-changer from day one. At Real Property Management of the Rockies, we help investors negotiate the challenging terrain of Frederick 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 970-658-0410 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.
