5 Tips for Choosing Your Next Real Estate Investment
Real estate may seem like a sure-fire investment opportunity, but it isn’t always a win. You are investing in a mini business, so you will have to know your projected income and expenses and make sure the results satisfy your investment goals. Don’t worry, though. We’ve gathered some of our best tips right here to help you to choose your next real estate investment in the DC Metro area–and to maximize your profits.
1. Start Small (Budget)
If you’re new to investing, it’s tempting to buy a high-dollar property in a high-end neighborhood hoping for a massive return. But the reality is that the bigger your budget, the more room for mistakes…especially when you’ve never invested in real estate before.
Be conservative and start with a small budget. Find a property that might be below your budget and requires minimal (or at least lower-cost) renovations and repairs in a neighborhood that shows potential for growth. If you start small and make some smart choices, you’re more likely to see profits.
2. Know Your Neighborhoods
Whether you’re investing in a DC property or looking to purchase an investment property somewhere else in the U.S., knowing the neighborhoods where you’re investing is key. Choosing a property in a neighborhood with mostly owner occupants could mean poor returns on your investment if it is difficult to find renters. Similarly, areas with lower property values may be enticing, but find out what the crime rates are or if it will be difficult to find quality renters to live in that area.
But choosing a neighborhood where to invest can mean big income potential if it has strong renter potential and longer term appreciation in values. For example, finding a property in a moderate income neighborhood at a lower cost and investing some money into repairs and updates could give you the opportunity to get a higher monthly rent if that market has plenty of renters looking for a place to live and yours is more updated than others.
In DC, up-and-coming areas like Trinidad, Hillbrook, Deanwood and Hillcrest are great options for flipping or renting, with plenty of affordable town-homes and single-family detached homes ready for investment and renovation. D.C.’s Opportunity Zones are also areas that are ripe for investment–even if you’re a smaller investor and not part of a development company.
3. Do Your Research
Wherever you decide to invest, it’s important to do your research. Once you’ve chosen a neighborhood (or neighborhoods) to consider investing in, you still have lots of work to do.
Here are some things you want to know before you choose a property:
- Average rent for the neighborhood based on similar homes being advertised online
- Market values for comparable homes so you know what to offer in your purchase contract
- Values for updated properties similar to the style and size so you’ll have an idea what your property will be worth when you’ve finished renovating
- Property tax range assessed in the price range you’re expecting your property to be valued at once repairs are done
4. Do the Math
Even if math isn’t your favorite activity, it’s an extremely important one when it comes to investing in real estate. Before getting started, you’ll want to calculate how much you already have on hand for investing and how much you might need to borrow.
Before purchasing a property, you’ll also need to have a clear idea of your complete budget, including a 20%-25% down-payment if you plan to finance the property, a budget for repair expenses, a contingency budget for unexpected expenses, and fees or retainers you’ll pay any other professionals during the process (see number 5).
You’ll also want to estimate the time it will take to complete work on the property and determine operations costs during the purchase, renovation and sale or rental process. In addition, if you’re planning to rent the property, you’ll want to include estimates for continued repairs.
5. Be Prepared for Anything With a Team
When you’re planning to invest in a property, whether a rental or a flip, you’ll want to make sure you have a team of professionals to assist in areas you may not have knowledge or experience in. Sometimes you may prefer to delegate these things to full time professionals, even though you could do it on your own. Don’t forget to consider the opportunity costs of things you would not be able to do if you are occupied with these and the hourly rate for your time.
Here are a few people you’ll want to connect with and have at the ready to assist you when you need them.
Real Estate Professional or Realtor©
Partnering with an experienced realtor with familiarity with the neighborhoods you’re considering will be key to your success. Among other things, a realtor will be able to help you locate properties that meet your needs, create price comparisons for the neighborhoods, and assist with renting or selling the property once it’s ready.
Making connections with contractors, who can do everything from construction to plumbing and electrical to roofing and more, should be a priority when you’re planning to invest.
Having a team of experienced contractors available to help you with renovation and repair estimates, as well as maintenance work if you plan to rent the property, will help you to keep on schedule and on budget. They’ll know which properties are good investments that need minimal work and which ones might be over your head.
Property Management Team
If you’re planning to rent your property, having a management team by your side will be extremely helpful. Property managers are very knowledgeable about the local rental market, regulations, and industry best practices in dealing with tenant or lease issues. You can be involved in the process as little or as much as you choose, but you can have a professional handle tenant screening, repairs management, regular property inspections and more.
Landlord Tenant Attorney
Having an attorney on retainer to help with legal matters is a good investment for any business owner, and as a property investor, that’s exactly what you are.
Finding a real estate attorney for your team will be important from the beginning of the process. They can assist during the purchase of the property, handling title searches, reviewing and writing up contracts and purchase agreements, as needed, and dealing with any other legal issues that might arise during the process.
If you’re looking to rent out your property, finding an attorney also familiar with landlord/tenant laws and regulations will be important. This lawyer can help with developing a legal and complete lease agreement for your tenants, as well as handling any other legal issues, such as evictions, should they be necessary.
Ready, Set, Go!
This may all seem like a lot of work before you even buy a property, but arming yourself with all this knowledge, knowing the numbers and what they mean for your specific situation, and bringing together a team that can support you as you move forward will help ensure you make maximum profit on your investment.