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Maximizing Returns: Understanding the Risks and Rewards of Real Estate Investing

Maximizing Returns: Understanding the Risks and Rewards of Real Estate Investing

The real estate market is always a profitable way for savvy investors to generate consistent rental income in the short term and impressive financial returns in the long term. If you understand the market and the strengths of the properties you own, maximizing returns allows you to find even more success as an investor. There are a number of rewards and benefits that smart real estate investors enjoy. You’ll earn money, you’ll set yourself up for some great tax breaks and you’ll have a tangible asset that grows in value. 

No investment is without risk, however, and that includes property investments. Understanding the risks associated with investing in real estate is paramount if you want to establish profitability and increase portfolio performance. 

When you’re investing in Norfolk, Hampton Roads, or any of these local Virginia communities, you need to lean on your experience and your professional network of experts. This will help you maximize returns by balancing your risk against your potential rewards.  

Maximize Your Investment Earnings: Rental Property Rewards

When we talk about investment opportunities and the potential for rewards, we’re talking specifically about the markets we know best: Norfolk, Portsmouth, Hampton Roads, Virginia Beach, Suffolk, Chesapeake, and Newport News. These are communities with a lot of opportunities for growth. The quality of life is enviable, especially when we’re talking about neighborhoods close to the water, entertainment, recreation, and great schools. 

You’ll maximize what you earn in these markets because of the high home values, rising rents, and the large pool of tenants who are eager to rent an attractive, well-maintained home.  

  • Property Values, Equity, and Appreciation

Let’s say you bought an investment property in Norfolk 20 years ago. You’ve probably almost paid off your mortgage, your equity has grown tremendously, and your property is worth a lot more now than it was when you bought it. 

This is real profit. When you sell, you’ll make some good money. You can maximize those earnings by holding onto the asset for a little longer, and maybe letting your tenants pay off your mortgage completely. This would be a huge reward and one that you’ve earned by being a smart investor. 

The sales market over the last few years has been wild. Demand for homes grew right out of the worst of the pandemic, inventory shrunk, and prices rose by a lot. Things have peaked and settled just a bit, but there’s still a lot of demand and prices are still high. Interest rates shot up but there’s no reason to believe we’ll suffer through further increases.  

The local real estate and rental markets remain competitive. Home values are high, and local real estate has been appreciating steadily over the last five years. This is a reward, especially for investors who are committed to holding their assets for the long term. You can expect some solid appreciation, and you’ll find that your property is worth more year after year. By the time you’re ready to sell, your mortgage will likely be almost paid off. That’s going to give you a nice profit margin. 

  • Maximize Your Earnings by Leveraging Investments

Owing too much money during an economic downturn is risky. But, it doesn’t look like we’re headed for the dreadful recession that some people predicted. You also have to remember that owning real estate is always lucrative. 

Debt does not have to be bad, especially when analyzing what you earn and can potentially earn on your property. Debt can be a risk, but it can also be a reward when managed well. 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. 

  • High-Quality Tenants 

Right now, you don’t have to worry too much about how you’ll find a tenant. More than half of all the residents in Norfolk, for example, are renters. There’s a strong pool of tenants and a growing population of people who need homes. The local tenant pool is always likely to be a huge reward when it comes to investing in this market. 

Maximize Returns with Tax Benefits 

Don’t forget that you’re earning more than you think you are. 

Taxes are something that most of us want to forget about. But, the tax deductions you can take as a rental property owner provide a great reward. 

Buying an investment 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, accounting, or legal advice

These tax benefits will help you offset the income you’re required to report on your taxes. It’s a great way to protect you from paying higher taxes.

Prepare Yourself for Investment Risks When Buying Norfolk Rentals

As you see, there are plenty of rewards to investing in local real estate. 

What about the risks? Here’s a brief list of what you should prepare for before you invest.

  • Financing Your Real Estate Investment Can be Tricky

You’ll need money when you want to invest in real estate, and the way you finance your property can be risky. Look for a mortgage that’s safe and affordable. Or, be creative with how you finance your property. You can pay in cash if you have it. You can use a hard money lender or work with owner financing. There are several ways to do it, and all of those ways carry their own risks.

Decide where you’ll find your down payment if you’re hoping to get a conventional mortgage. Prepare to demonstrate you have solid credit. Have a financial plan before you buy. 

  • Understanding Legal Risks

The Virginia Residential Landlord Tenant Act dictates everything you are required to do as a landlord when it comes to providing safe and habitable housing. Many investors forget that they’ll have to meet strict guidelines and follow detailed protocols when it comes to inspections, applications, rent collection, eviction, and security deposits

There are also fair housing laws to be aware of, as well as laws that protect people from discrimination. It’s surprisingly easy to make a legal mistake, and these mistakes can be costly. Be prepared to understand the rental laws intimately if you want to avoid making an error that can you cost you money as well as your reputation. 

  • Buying the Wrong Rental Home

Simply buying a property is risky because you never really know if it’s going to perform the way you expect it to. Maybe you won’t get the rents you’d hoped for. Maybe you get stuck with a long vacancy or a lot of repairs are needed. No investor wants to endure a decade of negative cash flow. You can do all your required due diligence and still end up with an investment property that simply isn’t making you any money.

  • Bad Tenants are Risks

Residents are a reward. They pay rent and they help you take care of your property. 

Unless they don’t. 

Tenants come with their own risk. If you don’t screen properly or you run into a problem with your residents, you could find yourself trying to collect late rent, paying for excessive property damage, and managing ongoing tenant conflicts and disputes

Balance Risks and Rewards and Earn More with Local Property Management

Remember that just owning real estate 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. 

Network with other local investors and partner with a local property management company. This is often your secret weapon; smart investors understand the value of property management help. We can help you mitigate the risks and increase the rewards. Take advantage of our investment advice, our market knowledge, and our technology and systems. 

Even if you’re an experienced investor and you’ve bought and sold investment homes in Virginia before, the market has shifted and the economic conditions are changing every day. 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. 

Contact Property ManagerLet’s talk about your potential. Please contact us at Doud Realty Services. We provide expert property management in Norfolk, Portsmouth, and Hampton Roads, as well as surrounding areas such as Virginia Beach, Suffolk, Chesapeake, and Newport News.