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5 Things You Should Know About Rental Property Investment in Cambridge

Cambridge Man Looking at Investment PortfolioThere are numerous things that a rental property investor has to know to make that first single-family rental home a success. By setting aside the time to get familiar with the essentials of rental property investing before entering out into the Cambridge market, an investor can give themselves a substantial advantage. By learning about the five key things that rental property investors need to know, you can quickly get yourself on the path to property investing success.

1.      Plan Ahead

Investing in Cambridge rental properties requires a great deal of up-front planning. Bouncing into the real estate market without a conscious thought of what your goals are and which steps you need to take to get there can leave you ineffective and overwhelmed. Plan your course of action by writing down your objectives, which should include a long-term investment plan.

For example, you might ask yourself questions such as: Are you more concerned about long-term appreciation or cash flow? Are you planning to occupy the property at any point, or is it purely an investment? If your goal is to generate $5,000 a month in retirement income, you’ll need a clear strategy and a multi-year plan to get you there.

You will also need a clear plan to generate the funding you need for ongoing expenses. Beyond the down payment and closing costs, there are operating expenses, property taxes, insurance, and other costs that must be paid each month.

While the idea is to design your rental property so that your rental income covers both your mortgage payment and these costs, that may not always go the way you want it to. Certain months may see a negative cash flow due to vacancy, large repairs, or other unexpected expenses. One approach to plan for the unpredicted is to set aside a percentage of each month’s rental income into a separate “contingency fund” account. That way, you’ll never be caught without money available in a critical moment.

2.      Understand Risk vs Return

In the rental real estate market, there is a link between risk and return. Investing in real estate is a generally low-risk option for investors. In any case, there are still risks associated, and the typical situation is that the highest returns are usually the result of taking on the ones with the highest risk. Generally speaking, rental homes in more affordable neighborhoods offer the highest potential yield but are also riskier because of the inherent volatility of such areas. More expensive neighborhoods, then again, might not have that volatile nature but instead will be a much higher up-front investment and will cater to a much smaller percentage of renters. Choosing where your investment comfort zone is ahead of time can help make your property searches much faster and more efficient.

3.      Know Your Renter Demographic

Along with property type, you’ll need to determine early on about who your target renter is. It is common sense that not all rental homes will appeal to all renters. For example, Millennials and young professionals tend to have distinct preferences and values from what other categories of renters have. Try to look at prospective rental properties through a renter’s eyes and see whether you can discover to which set of tenants it might appeal to most. Once you know who the renters are in your market, you can shop for a property with their needs in mind.

4.      Organize Your Business

Investing in rental properties is a business. Dividing your investing from your personal life is an integral piece in making sure you have the arrangements you need in place for long-term success. For instance, at a minimum, investors should have a separate bank account for their rental property business, in addition to a money management app or software to help them keep track of it.

Make sure to categorize your expenses, mainly if you have more than one rental home: you’ll want individual income and expense numbers available for each property once tax time rolls around. Documents, invoices, and other paperwork should be organized into folders, either digital or on hard copy. This can make getting information much less of a difficulty.

When setting up your business, recognize that you are the CEO. That means that you’ll need to have a system in place to delegate time-consuming tasks to a team of trusted professionals. A property manager, real estate agent, and a lender are essential. Most investors also have a lawyer and a trusted contractor or two on their team as well.

5.      Adjust Your Outlook

Maybe the most significant thing to learn about real estate investing is that it is a long distance race, not a quick dash to completion. The profits will come, but only if you remain diligent in the long run. Some months will feel like a victory and some not, but with patience, information, and a solid strategy, you can weather any market fluctuations and end up as a winner as you continue.

While nothing can help a rental property investor more than experience and information, having a sound support system can be a game-changer from day one. At Real Property Management Commonwealth, we help investors negotiate the challenging terrain of Cambridge property management. Our systems and innovative approach to property management guarantee that once an investor has stepped into rental property investing, the many years of ownership to come are as smooth and profitable as possible. Contact us or call us at  617-299-2342 for more information.

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