The decision to begin investing in real estate can be a tricky one and should not be taken lightly. With real estate investing, it’s best to look before you leap. Just make sure the ground is there below to catch you. Investors are increasingly interested in Wissahickon, Philadelphia, and Wissahickon real estate. Is it time for you to look into this market as well? First, you will want to determine your goals for your Wissahickon real estate investment.

Determine your goals

You have a few options to consider when deciding whether to invest in real estate. However, most real estate investors do one of two things: purchase a property to renovate and resell or purchase a property with the goal of renting it out. Both of these options have their own pros and cons.

If your goal is to purchase a property to flip (renovate and resell), you must carefully study the real estate market. Are homes in that area selling for the price you hope to receive? Can you purchase and remodel the home for a reasonable price that will ensure a return on investment later on? What costs will be associated with the remodel? You may want to consult a contractor for this option to be the most effective.

The second most common option for real estate investors is to purchase a property and rent it out on either a long- or short-term basis. If you go the short-term rental route, it is necessary to plan for the costs associated with furnishing the home, cleaning in between guests, and routine maintenance in addition to any remodeling costs. Short-term rentals can be more lucrative in the right areas, but they suffer from higher upfront and maintenance costs. If you intend to rent the home out to long-term tenants, you may only need to do some light remodeling, painting, or repairs to prepare it for tenants.

So, do you think you’re ready to invest in Wissahickon real estate? Once you’re armed with the information in this guide you will be one step closer to an investment property in Wissahickon, Philadelphia. Here are some tips to help you ascertain whether a property is a worthwhile investment.

Study the area

How familiar are you with the area where you plan to invest? Have you studied the market for a 10-year period or so to better understand how it has changed over time? Real estate markets can definitely be hard to predict because we can never truly know what the future holds, but looking to the past can help you make an informed decision.

Once you know a bit more about the area, it’s time to check out other homes for sale nearby, especially similar homes. What are the rental rates for these homes? Are they outfitted with top-notch furnishings and appliances? If so, it would be wise for you to update your rental property accordingly to be competitive at the same price. What are the purchase prices for nearby homes of comparable size and number of bedrooms? Is your home going to be competitive price-wise if you flip it to resell? These are all questions you must ask yourself as you scour the relevant market.

Remember the 1% rule

You will likely have your pick of excellent investment properties in Wissahickon, Philadelphia, so here is something to keep in mind: the 1% rule. So, what is the 1% rule? The Washington Post states that the rental price per month of an investment property should be no less than 1% of the total purchase price. This includes any remodeling costs.

So, let’s say you purchase a move-in-ready home for $150,000. Per the 1% rule, the monthly rent for the home should be at least $1,500 per month. Now, let’s focus on another example where you purchase a home for the same price, but you spend another $50,000 remodeling the home. Thus, the total cost of the home is $200,000. In this instance, you would need to receive a monthly rental income of $2,000 a month.

Calculate your capitalization rate

The capitalization rate, or cap rate, on a property will depend on the circumstances. The capitalization rate is defined as the rate of return on a property. As a rule of thumb, the optimal capitalization rate is between 5%-10%.

To determine the capitalization rate, Forbes suggests taking the average rent for your property and multiplying it by 11.5%. This way, you can calculate the gross income for the property while allowing for two weeks per year of vacancy. Then you subtract any operating costs. These will include things like painting between tenants, repairs, taxes, and property insurance.

Using the $150,000 house example from above, imagine you can charge an average monthly rent of $1,500. That rental price multiplied by 11.5% gives you a gross income of $17,250. If your operating costs are $4,000 per year, you will earn a net income of $13,250. Divide the net income ($13,250) by the price of the house ($150,000) to determine your cap rate. In this case, the cap rate hovers just under 9%, which is well within the ideal rate of 5%-10%.

Think about the future

Investing in real estate is typically viewed as a long-term investment. Unless you plan to purchase an inexpensive home that needs work with the goal of flipping it, you are likely in it for the long haul. Gaining equity in the home and receiving tax breaks are two of the major benefits of purchasing and holding your investment long-term. Speak to a tax professional about your investment to ensure you receive the most beneficial tax breaks.

So, you have determined your goal, studied the area, located a property that fits into the 1% rule, and calculated your cap rate. What’s next? If you are hoping to invest in Wissahickon real estate, you have come to the right place. The team at Powerhouse Real Estate has experience helping investors like yourself find the perfect property. Reach out to one of their agents to start investing in Wissahickon, Philadelphia, real estate today.