Rental property investment is an increasingly popular option for Americans who wish to build wealth, whether to generate additional income or save for retirement. Real estate investing serves as a way to supplement or replace their existing income in the short and long term. Regardless of why investors enter the real estate market, there are some fundamental principles they should be familiar with before they make a purchase.

The State of Real Estate Investment in the U.S.

The past few years have been challenging for businesses across industries. Pandemic-induced supply chain disruptions, rising inflation, and uncertain economic conditions make it difficult for investors to find assets that can deliver consistent returns and protect their value. However, the U.S. real estate market has seen growth even throughout the challenging economic conditions of 2020 and 2021.

According to Grand View Research, real estate is expected to continue its upward trajectory, with an estimated CAGR of 5.2% between 2022 and 2030. This represents a massive investment opportunity for individual and institutional investors to build an asset portfolio that can keep pace with rising costs and evolving investor expectations.

5 Principles Every Real Estate Investor Should Know

Before diving into the real estate market, be sure to educate yourself on some of the fundamental tenets of real estate investing.

1.   How You Invest Is More Important Than When You Invest

While it shouldn’t be mistaken for a “get rich quick” scheme, real estate is one of the most resilient assets investors can have in their portfolios. It has consistently proven its ability to deliver growth during periods of economic uncertainty and turmoil. Rental income, in particular, can be adjusted to match the financial needs of property owners and ensure profitability. This means that investors can continue to purchase rental properties during recessions or challenging economic times. With adequate research and due diligence, there really is no bad time to invest in real estate.

2.   Hire a Capable, Trusted Team

Some rental property owners are tempted to do everything themselves but this can be time consuming and inefficient. As investors purchase more properties, the time commitment required to manage them increases unless they have a team to support them. Some hands-on landlords might prefer to handle tenant interactions themselves — but it’s important to offload some responsibilities. Landlords should build a team of property managers, contractors, financial advisors, legal counsel, accountants, and more to minimize time spent managing each property. In fact, these experts can help save you money by maximizing tax benefits, getting the best loan terms, or filling vacancies faster.

3.   Always Conduct Thorough Due Diligence

There are many things that can affect a property’s value and profitability. Location, demand, amenities, employment opportunities, and so much more go into determining the rental income an investor can earn from a single property — and these factors vary tremendously across different locations and property types. Investors must conduct sufficient research for each property to understand the market they’re buying in and the costs associated with managing a rental property in that area.

4.   Maintain a Strong Line of Credit

Rental properties can seem out of reach as an investment for many Americans due to the high up front costs required at the beginning of the purchase. This investment is paid off over time and reaps rewards for patient investors. However, a strong line of credit can open up a range of financing options that can help average Americans participate in real estate investing. Credit can also help investors deal with unexpected expenses such as emergency repairs or urgent advertising during periods of unexpected rental turnover.

5.   Maintain Positive Cash Flow

Diversification is a key principle of investing in any type of asset. Sometimes, rental properties take time to begin generating profits for investors. If you manage a portfolio of rental properties, try to ensure the profits of one property offset the losses of another — either through increasing the rent or minimizing expenses. This will help you maintain positive cash flow overall as you purchase new investment properties to grow your real estate portfolio.

Looking Ahead: Real Estate Investing Trends

As the real estate market continues to evolve, investors must change how they manage their rental property business. Following are a few predictions on the future of real estate investing.

Technology Will Optimize and Automate Important Tasks

Digital transformation seems like an overused buzzword but the impact of technology on the real estate industry is undeniable. Rental property owners already have access to highly specialized software that helps them keep an eye on their finances across their investment portfolio, manage tenant communication, collect rent, and so much more. As more specialized products enter the market, landlords and tenants will be able to optimize and automate important processes, such as appointments and maintenance scheduling, even more efficiently.

Renters Will Expect Seamless Online Experiences

As younger and more tech-savvy renters enter the market, landlords must remain aware of their preferences and adjust to them accordingly. In the age of convenience, renters no longer want to mail paper checks to their landlords or communicate with them via phone calls during specific hours. Today’s renters demand a seamless online experience in all aspects of their lives — and renting an apartment is no different. Be sure to leverage digital rent collection tools and communication methods that meet their expectations for ease and convenience.

More Investors Will Buy Properties Sight Unseen

States can vary wildly in their attractiveness to investors. Tax rates, income potential, and tenant regulations can drive some buyers out of their own state to look for properties to invest in. With 3D modeling, virtual reality property tours, and online property information databases, investors can arm themselves with the right information to make a purchase decision without ever visiting the property in person.

Take a Smart Approach to Real Estate Investing

Real estate will continue to be a popular investment for Americans, but some investors will be more successful than others. Landlords willing to do their research and follow these key principles stand to benefit significantly from what real estate investing has to offer.

Author Bio:

Mike Bang is Head of Growth at Azibo, the one-stop-shop financial services platform for rental properties, providing a world-class platform for rent collection, banking, lending, insurance and more.