2022 felt like a nervous year for property investors. However, as we enter 2023, the market seems far more exciting, and US property is even attracting foreign investment interest.
If you have an eye on a property in this fast-paced market, you might feel tempted to snap it up. But before you do, ensure you understand an investment property's long-term implications.
Here is what you need to know before you buy an investment property.
Local Housing Market Trends
Before buying an investment property, you must research local housing market trends. It's often the best predictor of future house prices.
The DC area is highly competitive, so prices are high. Still, it will likely outperform other places even in a depressed market. Currently, the median house price in DC is around $550,000.
In line with other US locations, the DC housing market did experience a slight dip last year. Nevertheless, prices remain high relative to other US states, and properties don't stay on the market for long.
Rental Properties Vs. House Flipping
Before investing, you should decide what to do with the property. Your answer will shape the type of investment house you buy.
If you want a long-term income from a rental, you'll need to prioritize looking for a house that ticks the box for the rental community. That includes proximity to local amenities, size, and neighborhood.
And you may want to think about how you will manage the day-to-day of a rental or whether you prefer using professional property management services to do that for you.
If you're flipping a house, you'll want to look for something with the potential to renovate. That could include, for example, space to extend the ground floor or basement spaces ripe for conversion.
Calculate the Ongoing Cost of Ownership
Once you've bought your investment property, your expenses don't stop there. So before making a purchasing decision, you'll need to put a spreadsheet together to outline all the upfront and ongoing costs. That must include the following:
- Ongoing property maintenance
- Initial repairs
- Renovations and decorations
- Extensions and improvements
- Borrowing costs
- Insurance costs
- DC property taxes
- Real estate services and legal costs
- Professional surveys and inspections
Once you have these costs, it will be easier to determine your likely return on investment. You can estimate your sale price or monthly rental income and use that to calculate your passive income.
Understand Local Laws
You'll need to understand your responsibilities as a landlord in DC to rent your property.
Brush up on tenancy rights, such as the legal process for an eviction notice. You must also understand your right to take security deposits for a rental and your responsibility to produce a formal written lease.
You should also research zoning laws for DC. For example, suppose you're purchasing a historic property. In that case, you may be subject to historic preservation laws, which prevent specific construction work on a property.
The Wise Way to Buy an Investment Property
Even if you find the perfect investment, it pays to do your research. Use this guide on how to buy an investment property to ensure you make your decision fully informed.
When you have your investment, you'll also need the support of property management services. Start that first step by ordering our free rental analysis here.