The key to any investment is to get a steady return over time, and renting out property can be an effective strategy. While there is work required to ensure that you are able to provide for a rental community, you can earn a more stable return on your investment through development than you could through merely waiting for the underlying land or assets to accrue in value.
Before you consider property management, make sure to consider whether you are fully able to be vested in the venture. Whether you are buying an existing complex, redeveloping an older property or building up land into rental properties, there is quite a bit of time required to see the project to completion.
In particular, you’re going to have to oversee the physical (construction, upkeep, etc.) as well as the human (tenant relations) aspects of the project to keep it afloat and active over the long run.
As a first step, make sure you study the nature of the market, including trends in rates and occupancy – try to buy property where these trends are moving in the right direction, and where you can attract young professionals, rather than investing in a city that is otherwise in decline.
Keeping your buildings occupied is important and relates to both the work that you do, as well as the large macroeconomic conditions. Another important factor is to look at the time line for a return on your assets – most likely, it will be years before you can move the venture into profitability, depending on the financing you are able to obtain for the project. since borrowing in today’s market can be quite difficult, expect to pay a higher down payment with higher interest rates.
An important question is what type of property that you should invest in today – commercial or residential, and which niche within those? While that will depend upon your background, it’s generally advisable that you pay attention to market trends, both globally and in your area: the world is getting more mobile, so “traditional” properties are less enticing than more flexible, “greener” spaces today.
For example, there is growing demand for green eco-friendly condos for families (see CS Monitor). Investing in a new condo development that is green, as well as upgrading an existing unit can both attract tenants, increase the resale value and may very well earn you tax benefits, depending on your location.
Today’s real estate market has both perils and opportunities, but it’s best to take a longer term view giving the instability in the market. Take note of important shifts in the market, as many families “downsize” from owning homes to living in rentals, especially in areas where the job market is particularly active.
Always take note of the potential downside risks – for example, try not to rely upon an area that is dedicated to a few, large industrial employer as they could potential leave (along with your tenant base, as we’re seeing in Detroit today. Keep your rental property plans flexible and well diversified in the context of a shifting, global economy.