How should a new residential real estate investor approach the market? Appropriately priced rental properties in areas such as Collegeville and Royersford sell after only a few days on the market, before new investors even have time to view them. Inventories are low and prices are creeping upwards, but before you commit to buying real estate investments, there are several factors to consider.
Location, Location, Location
Are you tired of this mantra? Yet, when it comes to investing, location is extremely important. Successful investors know that a rental property in a great location is easier to lease out and the rent will be higher. In the Philadelphia area, proximity to the highways and the rail system is imperative, so calculate travel time from an investment property to Septa’s transportation centers, I-95, the Pennsylvania Turnpike, the Schuylkill Expressway or Route 422, some of the area’s major thoroughfares. Neighborhoods close to center city with nightlife and restaurants, such as Conshohocken and Manayunk, are popular for renters, but the houses are older and more expensive to maintain. In addition, since suburban Philadelphia towns have limited approvals of new multifamily projects, small investors can meet demand near corporate centers in Oaks, Fort Washington, and King of Prussia by offering individually owned townhouses or duplexes for rent.
True Investment Cost Isn’t Only the Purchase Price
Do you expect to replace high ticket items such as a roof, windows or an HVAC system? Is the work needed in the house simply cosmetic, such as paint and carpets, or will you need to gut the kitchen and bathrooms? In today’s market, tenants shop around before signing a lease and, similar to home buyers, many are looking for newer appliances, outdoor living spaces and hardwood flooring.
Ask yourself: if the house is currently an investment property, what can you do better than the current owners? By taking advantage of lower interest rates, your overall payment may be lower than an individual who purchased the property when investment costs were higher. If the house is currently rented, you may be able to assume some property management costs, such as repairs and home maintenance, based on the extent of your home improvement skills.
A quick search on Philadelphia’s Craigslist website will assist you in determining the range of monthly rents in the city and suburbs. Compare the current amounts listed to the current tenants’ payments to ensure you will be receiving at least market value for your rental.
One of the biggest challenges for buyers looking to purchase real estate investments is obtaining financing for a non-owner occupied property. For this reason, investment property purchases are often cash transactions. However, even if you need to get a mortgage, think of the principal in each payment as a direct increase to your overall net worth.
It’s difficult to predict where the overall market is going, but real estate in the Philadelphia area never fell quite as far as the rest of the country. Bargains are still out there if you have the time and patience to sort through thousands of listings in your preferred area and price range. Real estate is an important part of every retirement portfolio, one that helps even out your returns in a down stock market.