Maximizing Returns: Understanding the Risks and Rewards of Real Estate Investing
To effectively maximize the returns you earn on your investment, you need to understand the risks and rewards of investing in real estate.
Yes, you’ll earn consistent and recurring monthly rent as long as you’re able to identify, place, and retain good tenants. And yes, you’ll earn long term returns as your property appreciates in value. But, you have to keep it maintained and updated.
As you’re planning your investment goals and deciding what you want and how you’ll define success, consider the risks you’re taking and the rewards you expect to reap.
We are sharing some of the most common risks that rental property investors have to manage, and the most satisfying rewards that often come from their investments. Take a look at these before you invest and as you review your investment goals with the hope of maximizing your returns.
Investing Rewards – Maximizing Your Returns on Vancouver Rental Properties
Let’s start with the rewards to investing in real estate here in Vancouver. For starters, it’s a great community with a lot of opportunity for growth. The quality of life is enviable. You should buy rental property in Vancouver for some of these reasons.
- Maximize ROI with Higher Rents and Rising Property Values
Rents are high in Vancouver and the surrounding area, and this presents not only a reward for real estate investing, but also an opportunity for investors to maximize what they earn. If you’re renting out a property and the lease renewal date is approaching, you should feel comfortable raising the rent on your current tenants. You don’t want to make too huge of an increase, but you can easily begin earning more in rent once the lease renews.
Property values have also increased over the last couple of years. Your asset is worth more today than it was before, and that’s going to give you more equity and some extra leverage. If you decide to sell, you’ll earn more money. If you decide to hold onto your asset for a few more years, you’ll really maximize your value, especially as your tenants pay down the mortgage for you and you continue to improve your property.
Home values are high, and local real estate has been appreciating reliably over the last five years. This is a reward, especially to the investors who are committed to holding their assets for the long term. If you’re thinking about investing now, you’ll have to be prepared to spend a little more in this market. But, the appreciation and the rising home values will make your investment worth the money you’re spending.
- Demand is Still Higher than Supply
Another good reason to invest in Vancouver is that the rental market is perhaps even more competitive than the sales market. Good rental housing is in high demand. Always. And the inventory is usually tight in this part of Washington State. You still need to offer an attractive, well-maintained home in order to attract tenants. However, the market as it stands today has created a situation where residents are competing for your property.
Maximize what you have to offer by attracting the best tenants to your rental home. Ideally, you’ll create competition between the best qualified residents and enjoy a fast leasing process and low vacancy and turnover rates.
- Maximizing ROI with Tax Benefits
You also have an opportunity to increase what you earn by maximizing the tax breaks you take when renting out a property. This is a major reward to investing in real estate. Selling a property requires you to pay capital gains taxes, unless you reinvest your earnings through a 1031 exchange. Buying a property immediately provides you with tax benefits. You can deduct several expenses associated with owning an investment property, including:
- Property taxes
- Depreciation
- Mortgage interest
- Property management fees
- Property insurance
- Maintenance costs
- Additional professional service fees, like insurance or accounting or legal advice
These tax benefits will help you offset the income you’re required to report on your taxes. The savings will more than pay for professional services, too, such as property management and tax prep.
- Leveraging Your Vancouver Property
Owning real estate in Washington is profitable. Depending on your investment goals, you’ll find you can leverage what you’ve purchased in order to buy additional real estate, conduct a 1031 exchange when you’re ready to buy a different property, or get some cash out of your property when you need it. A valuable asset here puts you in a favorable position when you’re bargaining, applying for a loan, or leveraging other people’s money to finance your next investment. You’ll be able to grow your investment portfolio steadily as you maximize what you earn now and in the long term.
Investing Risks – How to Protect your Income and Earnings
We love talking about all the great reasons to invest in real estate, but what sorts of risks should you be prepared for, and how might they impact what you earn?
There are always risks with any investment you make. Real estate is slightly less risky because it’s a tangible investment that’s also a hedge against inflation. But, there are still risks, and those risks can feel pretty intense because you’re dealing with people and their homes.
Even good tenants can be unpredictable. You’re also forced to operate within some strict laws and legal requirements when you rent out a property. The market will go up and down. Here’s what you need to know.
- Real Estate Investments Require Money
The price point for most Vancouver-area investment homes is pretty high. You’ll need to arrive on the market with money to spend or a plan for financing your investment.
When you think about when you can buy for the same amount of money in other markets, you have to be financially willing to risk a large amount of money on the investment you make in Vancouver. Washington State, in general, is not a cheap place to own property. Plan your strategy for financing your purchase. You’ll need a sizable down payment if you’re hoping to get a conventional mortgage. You’ll need solid credit and financials that lead lenders to believe offering a mortgage to you is a good business decision. Other types of financing will come with their own levels of risk. Have a financial plan before you buy.
- Washington State’s Tenant-Friendly Rental Laws
Washington is well-known for the laws that protect tenants. While there isn’t any statewide rent control to contend with, there are still laws in place that cover security deposits, habitability issues, evictions, and fair housing. You have to know what you’re doing, and you have to make sure your lease agreement and your procedures are aligned with the Residential Landlord Tenant Act.
Be prepared to understand the rental laws intimately if you want to avoid making an expensive legal mistake.
- Rental Property Expenses
Real estate is more expensive here, and when you invest in and around Vancouver, you’ll also find that the cost of living in general is higher than the national average. You’ll pay more for everything, including maintenance, repairs, professional services like property management and accounting, and insurance. Expect to budget more for everything than you would in other markets.
This is a risk because if you find yourself unprepared to meet the cost of keeping your property habitable, you could lose the investment. A long vacancy is unlikely in Vancouver, but if your property isn’t attractive to good tenants or you’re charging too much to attract anyone, you’re going to absorb some pretty insurmountable losses. This is a risk to consider when you’re looking at where you are financially. Make sure you’re prepared to pay for an investment that may not make you positive cash flow for several years.
Additional Considerations for Vancouver Real Estate Investors
Remember that just owning real estate in Washington means you’re making money. You may not see it in your day-to-day accounting, but the earnings and the value are increasing steadily, even if you can’t see it. Focusing only on positive cash flow and instant returns is risky. You’ll get discouraged and you won’t feel like you’ve made a good investment.
Spend some time learning from other local investors. Real estate can be a competitive industry, but you’ll also find that you can learn a lot when you’re willing to listen and participate in local and industry events. Not only can you learn how to be successful in a wild market like this one, you can also learn from the mistakes of more experienced investors.
Finally, invest in good Vancouver property management. Even if you’re an experienced investor and you’ve bought and sold investment homes in this market before, things are always changing, and there are things you simply cannot plan or prepare for. This market isn’t the market we had a year ago or five years ago or 10 years ago. You need the professional resources and expertise of property managers who can help you make your investments successful.
Let’s talk about your own personal risks and rewards, and how you can maximize what you earn with your investment properties. We invite you to please contact us at Utmost Property Management. We manage homes for investors like you in Vancouver, Camas and the Greater Clark County area.