Property Investment — Breaking Down the Risks + Rewards

Savvy investors usually subscribe to a brick-by-brick approach — incrementally building a well-balanced portfolio from the ground up. Real estate has long been considered a strong financial investment, delivering a tangible asset with tax benefits that allows for more control. Buying a property and holding for the long term can offer a lucrative value proposition. But how do you navigate the landscape to mitigate your risk and maximize your return? 

Property investment holds key challenges + takeaways. Let’s explore them both with Zach Scherschel, COO of Sprinkman Real Estate and Partner at Sprinkman Property Management.

I’m ready to purchase an investment property, but where do I start?

Whether a first-time or veteran property investor, the first step is to examine all financial considerations. A secret recipe of sorts, determining how much to invest can be your biggest challenge — but it doesn’t have to be. Calculate your net worth and determine the percentage of assets you’re willing to invest in real estate. Then assess your potential return, and weigh it against your initial investment, ongoing expenses and potential vacancy periods. Generally speaking, a solid initial investment percentage typically falls between 20-25% of your net worth. A smaller down payment may not be approved, while a larger one could limit your flexibility and ability to diversify.

How do I accurately forecast my returns?

The age old question — what will I get out of this? Sound analysis begins with understanding market fluctuations, your geographic area, operating/capital expenses, and how they may affect your investment. All real estate assets are exposed to core market risks influenced by variable economic conditions, interest rates and local area factors. But time is the great equalizer. Underwriting conservatively for what is known today will always be smarter than projecting future rates or appreciation based on uncertainty. A risk-averse approach considers the purchase price, initial down payment, current interest rates and amortization over 25 - 30 years. If interest rates decrease significantly or the property value appreciates faster than expected, it’s just an additional bonus when you decide to sell.

What factors should I consider when deciding on property management?

When it comes to the day-to-day management of a property, investing in your investment is essential. A critical step is assembling a strong property management team to address tasks and challenges with expert care — and protect the value of your asset. Property managers literally handle everything and the kitchen sink! Taking care of maintenance issues, securing tenants and managing turnover, collecting rent payments, and ensuring regulatory compliance are just a few key responsibilities. It’s especially beneficial to work with a management group that operates hand-in-hand with seasoned real estate experts who offer a network of potential tenants and trusted professional service providers. Thinking of investing? We’ve got you covered. Reach out to Sprinkman Property Management and discuss with alexis@sprinkmanrealestate.com or zach@sprinkmanrealestate.com.

How does an investment property bring value to my portfolio?

Real estate investments are among the most valuable and consistent assets to include in your portfolio. Not only do they provide diversification benefits as compared to more traditional financial assets, but also present another key advantage — control. With a property investment, you can help regulate its value through expert management, quality upkeep and strategic improvements, positioning it favorably to produce income and eventually sell for a desirable amount. This isn’t the case with stocks, where you can’t force share prices to go up! Additionally, property investments deliver long-term wealth accumulation. Despite some risks, they offer the potential for market appreciation and passive income stream over time. Simply put, your tenants pay rent against your mortgage while your property appreciates in value — annually accruing you wealth while depreciation of the physical structures offsets your tax liability.

Do you have more in-depth questions regarding property management, investments or renovations? With three distinct, full-service operations, Sprinkman Real Estate, Design Collective + Property Management are poised and ready to help. Let’s start the conversation.