A rental property is an investment that entails both risk and reward.
Fancy yourself a real estate mogul? The thought of owning property and being able to pay it off with monthly rent from a tenant is nothing new, especially in our little corner of the world. New, however, is the increasing number of student apartments. Thousands of beds have been added to the rental inventory market in Columbia over the past five years, which has created an ever-changing and challenging market for those smaller investors or folks with older rental units.
How does one get started in this sort of property investment? Previously, it was quite popular to purchase a multi-unit building (often a duplex) and while living in one half, rent the other to supplement, if not make, the mortgage payment. And then a few years later with some luck, a consistent rent roll and some equity, one could move out, rent that half and seek a second unit to add to the portfolio.
As property values continue to rise, this is becoming a bit less common. We begin to see more and more arms-length purchases being made by buyers in full-time careers elsewhere who see rental property as a way to diversify investments while planning for future income. But prices aren’t the only things you’ll find that have increased. So, too, has apprehension about the sheer volume of new units in the market. Multistory, luxury apartments feature amenities never dreamed of for college living just a few years ago. It’s not all bad news though, with low vacancy (2.9 percent according to a Quarter 1, 2014 study) and no indication that any of our local secondary-education providers intend to cap student enrollment. Even with new and improved student dormitories featuring many of the aforementioned bells and whistles, the attractiveness of living off campus seems to be thriving.
It’s also not all student-based rental housing in our city. … Instructors at one of the local schools, professionals here on short-term contracts, insurance and health care employers with varying commitments to employees all create tenancy opportunities for those owning rental inventory.
It’s also not all student-based rental housing in our city. Executive rentals, condominiums and multi-unit properties still have a healthy market supplied by transient industry in Columbia. Instructors at one of the local schools, professionals here on short-term contracts, insurance and health care employers with varying commitments to employees all create tenancy opportunities for those owning rental inventory.
“Sometimes your best investments are the ones you don’t make.”
— Donald Trump, The Art of the Deal
Do your homework.
Vacancy might be low, but competition for those who are willing to pay a premium is fierce. Seeking advice from an experienced Realtor can prove invaluable for those without intimate knowledge of the area, rent amounts and neighborhood breakdowns. Find someone who can help you understand if what you are considering is a good deal or a low-priced unit in an area no longer capable of commanding rents and the applicant base you are seeking. Make sure you are ready to be a landlord.
Be prepared. Be very prepared.
Owning rental property is not for the faint of heart nor the shoestring budget. Although you can make legitimate, diligent efforts to find quality tenants, sometimes you wait a long time to find them. Don’t pressure yourself into sacrificing your goal of putting a good tenant in a unit you have sunk hard-earned money into for the sake of not making a couple payments on the place. One bad tenant can make annual cash flow evaporate quicker than you can say, “Replace all the carpet, and repaint the entire place.” Make sure you are ready to be a landlord.
Diversify your portfolio.
Chances are if you have been at a job for a while and are now considering adding a rental property to your investment portfolio, this advice is something you’ve heard elsewhere. Sure as you wouldn’t want to put all of your money into one stock, you might be better served to not put all of your money into rentals on the same street. Sure, it’s convenient, and you’ll save a couple bucks when you pay for mowing or snow removal, but you’ll also need to draw all potential tenants to the same type of unit in the same part of town. Having an option or two is rarely something one regrets. Oh, and make sure you are ready to be a landlord.
Jason is a broker-owner at Weichert, Realtors – First Tier. Since 2001, he has closed nearly $100 million in transactions, and he prides himself on sharing honest advice with his homebuyers and sellers. Jason’s positive reputation was built with hands-on representation and excelling in communication and teamwork with his clients.