Factors to Consider Before Investing in Rental Property

As we are now over a year since COVID has hit the Northern Virginia Commercial Real Estate Market, there are a few items we see trending throughout this area.

Real estate investing is a great way to earn a sizeable passive income. However, many beginner investors make costly mistakes thinking the earnings are guaranteed as long as they manage to close the deal. But the reality is – this line of business is far from simple and obstacle-free, even though it seems relatively straightforward. If you want to secure some reasonable profits, there are a few factors to consider before investing in rental property. Luckily for you, figuring out what those factors are won’t be an issue – all you need to do is read this article!

Location of property

The location is one of the main deciding factors when it comes to profitability in both residential and commercial real estate investing. With that said, you should never observe a potential investment property separate from its surroundings. After all, this is one of the rare aspects that you cannot change and upgrade to your liking.

If you want to rent to families with children, make sure the property you are considering is close to good schools, green spaces, and different amenities that ensure convenience. On the other hand, if you are interested in commercial properties, prioritize the proximity to warehouse space, markets, freeways, and different transportation options. Also, since you will likely need to visit your rental property to manage it, you should find out whether reliable commercial movers are available in the area so that you can transfer your office with ease.

Additionally, keep in mind that properties in popular locations tend to depreciate in value much slower than those in less-favored areas.

Condition of property

Fixer-upper properties can be really tempting to investors due to their lower prices. However, you need to think twice about whether the property in question is indeed worth the money and time you would have to invest in it. It often happens that the required repairs and upgrades seem much less complicated than they really are, especially if you don’t have much experience as a real estate investor.

Now, this doesn’t mean you should, by all means, steer clear of spaces that need a bit of TLC. Instead of diving in headfirst, make sure to arrange an inspection and talk to experts about the genuine potential of the property you are considering.

Property taxes

An essential thing you need to remember as an investor is that your expenses do not end with the property’s price tag. Once you become an owner of a rental property, you will need to pay taxes, which, depending on the amount, can severely affect your income.

Typically, taxes are higher in more popular, urban areas and lower in rural communities. With that said, the requirements and regulations can differ, so your best bet is to consult with a tax advisor before signing your name on the dotted line.

Income potential

Profit is one of the main reasons people decide to try their luck with real estate investing. While there is no way to figure out an exact number, certain strategies can help you determine if a specific property is worth the hassle.

The one percent rule is one of the methods you should use to evaluate the potential for earnings. Namely, for a property to be profitable, the rent must be equal to or higher than one percent of its price. If the number you get seems too unrealistic for the area or the type of tenants you want to attract, it’s probable that your investment won’t pay off.

Property management

One of the factors you must consider before investing in rental property is what will happen once you become the owner. Contrary to popular belief, being a landlord is not all fun and games. This is a job that requires dedication, time, and effort, and it is not to be taken lightly if you want to do it right.

With that in mind, think about whether you are ready for everything that this line of business entails. Do you have experience in dealing with tenants? What about time? Can you handle emergencies promptly and efficiently? There is no need to get discouraged even if your answers to these and similar questions are no. A property manager could be your savior in this case. However, make sure your budget can handle this expense before committing to anything.

Consider the risks before investing in rental property

Without risk, there is no reward. However, this does not mean you should invest in the riskiest rental property there is. Since real estate investing is often a gamble, it’s crucial to familiarize yourself with everything that could potentially go wrong. In other words – do your research! Investigate the above-mentioned factors thoroughly, and don’t settle on anything before you gather all the valuable information available.

If you are not sure whether you can do this yourself, it’s a good idea to enlist the help of a trustworthy professional. An experienced real estate agent will be the most important asset on your rental property investment journey.

In conclusion

The factors you need to consider before investing in rental property should help you avoid throwing your hard-earned money and time down the drain. Still, not even this can guarantee that everything will go according to plan. Although knowing what to pay attention to will give you a much-needed boost of confidence, it’s essential to remember that real estate investing always comes with a dose of risk. With that said, do your best to thoroughly research the properties you are interested in and don’t relax, even when your vacancies are filled. Only by remaining alert at all times will you be able to stay on top of your investments.