To invest successfully in rental properties you’ll need clearly defined long-term goals and a well thought out plan or strategy to achieve your goals. This plan will keep you focused and enable you to weather the ups and downs of a cyclical market.
How to begin? Strategies will differ depending on the location you choose and its demographics. So after you’ve set your goals, step one of your business plan is to analyze your market. That will include researching: property values; employment status; prospective tenant pool; and the rental market.
Here’s a sample of a market analysis we did for Northern Virginia in the spring of 2011.
Property values: Due to the many distressed sales in Northern Virginia, properties are available well below intrinsic market value.
Employment status: The employment climate in Northern Virginia is one of the strongest in the nation and is projected to continue to grow for the foreseeable future. Employers, including government agencies and high-tech firms, provide well-paying jobs for highly educated professionals.
Prospective tenant pool: A large number of highly educated workers with specialized skills are drawn to the area to fill these jobs. Many come for short-term consulting projects. Due to the transient nature and mobility of the work force, many professionals are seeking high-end rentals.
Rental market: The current economic environment has created a high demand for rental properties. At the same time there is limited housing stock for rental properties due to lack of available land for development. The results are high occupancy rates, above average rents and above average increases in rent.
Once you understand the market, you’re ready for step two of your strategy. Next time we’ll look at how to choose the types of communities you will target, the asset class that works best for you, and how to establish your competitive edge. In other words, what you will offer tenants that sets you apart from the competition. And we’ll examine our cardinal rule for determining the right price for a property: The rent you are able to charge should cover your costs: principal, interest, taxes, insurance, condo fees, vacancy costs, and repair costs.
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