What You Need to Know Before Investing

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 Washington DC Real Estate: Are you interested in property investment?

A lot of people in Washington D.C. want to invest in real estate because it’s one of the greatest ways to build long-term wealth and a steady stream of passive income. But why invest in today’s market?

The stock market is extremely volatile and is actually down on the year. Also, a lot of people have money sitting in a savings account that’s earning nothing or even in some cases, earning them negative rates.

As for property investing, you can choose commercial, which includes buildings like offices and retail. Then there’s multi-family housing, which is defined as having two or more units in a single building. A lot of first time investors like a one-off unit; which would be a single-family home, townhouse or condo that they see as a long-term cash flow stream.

Many people come to me saying they want to invest for the appreciation. That’s the last thing you want to do. There’s no guarantees in property appreciation. You should invest in the cash flow stream; which is how every investor values a property. They do so on certain criteria:

1. Cash on cash return (or COC): This is your actual investment. If you invest $100,000 and you want a 10% COC return, your net operating income should be $10,000 after all of your expenses out of the property. It’s important to know your threshold for what you’re comfortable with investing to get that COC return.
2. Net present value (or NPV): This probably gives you the most accurate indication of the liability of value of an investment by factoring in interest rate risk into an annual five- or 10-year return of what that investment will produce in cash flow, and it gives you a present value of what those cash flow streams are worth.
3. Internal rate of return (or IRR): This gives you an overall return for not only the cash flow streams, but the sale of the property at a later date, rolled into the overall investment, and what that return would be. This is a good benchmark, but not as accurate as the previous two options.
4. Return on investment (or ROI): This is simply whether it’s a leveraged or unleveraged investment, what that return is going to be based off of how you structure the deal. 

Hopefully this gives you a good basis for property investing. If you have any questions I can certainly explain your options in more detail, just give me a call or send me an email. I’d love to work with you!