If you’re a first-time real estate investor in Philadelphia or the surrounding markets, we want to share some tips on how to have a successful investment experience even if you’ve never done this before.
The first thing you need to know is that investing is a great idea. You’ll have the opportunity to build some financial security and plan for long-term wealth. The property you buy will appreciate over time, leading to long-term returns. You’ll also be collecting rent every month, which will likely lead to short-term cash flow and will also contribute to the costs of maintaining a rental property.
Investing is smart, but you have to do it right. That means choosing the right investment property and planning for the right expenses. Any investment comes with risk, and rental property is no different.
Here are some of our best tips as experienced Philadelphia property managers and real estate experts.
Start with Investment Goals
What you buy, where you buy, and how much you spend will depend on your investment goals.
If you don’t have any investment goals in place, establish them before you begin searching for the right investment.
You need to know why you’re investing and what you hope to accomplish.
The investment goals you set will also impact how you manage financing your investments. Some of the questions you’ll have to ask about your first investment include:
- How much can you afford to pay?
- What do you have available for a down payment and closing costs?
- Will you approach traditional banks for a loan or look at alternative lenders?
- How much risk can you tolerate?
- Do you have enough of a reserve set aside for things like maintenance, vacancy, and professional services you’ll need?
If you have a pile of cash set aside, that’s one way to pay for your investment. But, most new investors do not pay in cash; they’re more likely to finance the property.
Gather Your Professional Partners and Network Early
As a new investor, you should beware of the temptation to do everyone on your own. There’s a lot of value in the experience of others. Surrounding yourself with experts is an essential early step when you’re investing in rental properties for the first time. Smart investors connect with people across the real estate and housing industries. You’ll want to begin meeting:
- Brokers
- Real estate agents
- Property managers
- Lenders
- Vendors and contractors
- Insurance agents
- Attorneys
Don’t wait until after you’ve purchased your first rental property. You want to learn everything you can going in, and when you have a reliable network in place, you’re less likely to make mistakes and more likely to identify and pursue those opportunities that really make sense to you.
Collaborate when you can and learn from everyone you meet.
Pay Attention to the Philadelphia Rental Market
Study the rental market. You’ll need to know what tenants are looking for, what rental values are looking like for various property types, and what kind of vacancy averages you can expect.
As you prepare to buy an investment property, you’ll especially need to know how much you are likely to earn from it. Market factors will always impact what you earn in rent, how you advertise your rental property, and where you find your tenants. So…get to know the market.
Philadelphia is an excellent rental market, thanks to the schools and the industry, the growing population of renters. Rents are higher and a lot of people are putting off a home purchase in order to continue renting.
Spend some time studying other homes on the market. Take a walk through the neighborhoods where you’re likely to buy. Follow the rental prices. Talk to property managers in Philadelphia who are reviewing applications, leading showings, and negotiating lease renewals. They can tell you what tenants are looking for and how much they’re willing to pay.
Find Out What You Need to Know Legally
In the city of Philadelphia, you need a rental license to lease homes. There are also local, state, and federal rental laws and codes that need your attention and compliance.
It’s a bit of a learning curve for new investors. Read everything you can. Talk to experts. Stay up to date on all the latest legislative actions and local requirements. You’ll need to understand fair housing and discrimination. There are security deposit rules to follow and habitability standards to meet.
Figure Out Your Financing
Spend some time preparing yourself financially for your first investment.
If you’re going to apply for a mortgage, good credit and a reasonable debt to income ratio is crucial. You’ll need a financial strategy that takes into consideration the mortgage rates that have risen. A down payment will be required.
Do the math and then do the math again.
The money really matters when it comes to how you pay for your property and how you continue to pay for it even while rent is coming in and tenants are paying down your mortgage. You have to factor in what your costs will be, including maintenance costs, insurance, property taxes, advertising and marketing, and even variable costs like vacancy.
Work With Philadelphia Property Managers
Remember when we suggested that you avoid trying to do everything yourself?
Partner with a Philadelphia property management company as soon as you decide to look for investment properties. This will help you estimate what you’ll earn and what you’ll spend on any improvements or repairs that are necessary before the property is ready to rent.
Experienced investors work with Philadelphia property managers because they treat their investment properties like a business. Professional managers can lease, manage, and maintain your home expertly and with a lot of tools and resources that independent landlords simply cannot access.
If you’d like some help investing successfully for the first time, please contact us at Innovate Realty. We work with investors of all experience levels in the greater Philadelphia metro area as well as surrounding suburban areas in Montgomery, Chester, Burlington, and Delaware County, to the Delaware River.
