The Washington DC metro area is a prime rental market. Like the rest of the country, elevated mortgage rates and home prices are turning many would-be home buyers into renters. In addition, DC has a large transient government and student population in need of housing. A volatile stock market has many considering the feasibility of real estate as an investment.
Becoming a landlord, when done correctly, offers financial benefits that other investments do not. If purchased through a fixed rate mortgage or with cash, landlords can hedge against inflation by increasing rent. Owners can build equity through principal payments and appreciation. Landlords can make a monthly profit from rent, and potentially earn a return when the asset is sold.
Investing in real estate, however, does have risks and unknowns. A few months vacancy between tenants, unexpected repairs, or increases in other costs, such as insurance, can significantly affect profit.
Traditionally, professional investors turn to real estate to protect their wealth during economic downturns. While real estate does not always outperform the stock market, historically it has offered a stable, long-term investment for laymen. When becoming a landlord It is important to understand costs and the state of the market. First, research the rental market. What is the standard rent? Are rents increasing or decreasing? What are vacancy rates? How attractive is the neighborhood? When considering a property and its viability as a rental, include all costs – monthly mortgage payments, maintenance and upkeep, insurance, and property taxes, etc.
It is important to know the return on investment (ROI) of a property. There are many factors that affect ROI and there are many ways it can be calculated. Some investors include equity, while others do not. Many operating costs, such as maintenance, capital improvements or vacancy rates are estimates. A property purchased with cash will have a lower initial ROI given the large upfront costs, while a financed property will have a higher ROI in the beginning. Regardless of how calculated, maintain consistency in calculations and review yearly.
Our agents can help you find investment properties and help determine if a property meets your investment goals. We know the rental market and can direct you to the best financing options. If you are interested in learning more – please get in touch!