Rental properties can be a great investment if they’re properly vetted beforehand. Here’s what you need to know to do just that.
I believe that rental properties in the Portland and SW Washington area are one of the best, if not the best, investments you can make. However, you need to have some knowledge about the market and the process beforehand in order to proceed with confidence.
First, where do you find investment properties? If you just go out and buy a retail home in a slower market, like the one we’re seeing right now, you have to be careful. There are a few different philosophies when it comes to making a real estate investment.
One thing’s for sure: You need to have a high cap rate in order to justify the investment. Your mortgage is an expense, as is your property management, fix-ups, and more. Then you need to determine what you’re bringing in for your rental. The difference between the two is your net profit. Then you divide that by what you paid for a property to get your cap rate.
In a hot market, if you can get a cap rate of 4% to 5%, that’s a great investment. If you’re in a market like Cleveland, Ohio, however, you don’t want a 4% to 5% cap rate because your appreciation isn’t going to be as high as it would be here. You’d want a cap rate that’s two or three times higher. When you purchase your property, you want to have some equity, either on the purchase price or in the repairs you make. If you break even on that investment, but have 15% to 20% equity, I think that’s a win.
“In a hot market like ours, a 4% to 5% cap rate is great.”
Overall, real estate is an incredible investment if the numbers work out properly. You need to know where to find these properties and to have good property management, too. With new state rental laws, you also need to make sure you set the appropriate rental rate right off the bat because you won’t be able to increase it by more than 10% per year.
If you have any questions for me about investing in real estate in the Portland and SW Washington areas, don’t hesitate to give me a call or send me an email. I look forward to hearing from you soon.
