Thinking of getting into real estate investing in Baltimore? Now is the time to follow your dreams! Follow these tips on how to invest in property.
Interest in investing in secondary markets like Baltimore has risen 52 percent.
Secondary markets hold the highest cap rates out of any type of market. Investment in these markets has increased by more than $3 Billion over the past six years.
Investors are rushing to get into markets like Baltimore before they grow and become too competitive and expensive to make a profit.
But when it comes to knowing how to invest in property in Baltimore, it can seem like an overwhelming feat.
A little bit of basic real estate knowledge and an understanding of the current Baltimore market and its future can go a long way.
Here’s what you need to know about investing in real estate in Baltimore.
Why The Baltimore Real Estate Market Is Ripe for Investment
From Washington Village to Patterson Park, neighborhoods across Baltimore are promising a steady rental income to savvy investors. For the past few years, Baltimore has experienced a rebirth, and it’s only expected to grow bigger over the next decade.
Rising rents and a high overall cost-of-living in Washington D.C. are continuing to send more people to Baltimore. This influx of Millenials, professionals, and creatives have started to transform the city into a destination. Baltimore is currently one of the top U.S. cities where the number of renters is greater than the number of homeowners.
Baltimore currently has the largest population in Maryland. It’s the 30th largest population in the United States. This influx in population has brought businesses in both the public and private sector to Baltimore. The city is also close to other hotspots, like Washington D.C., Philadelphia, and beaches. This all equates to a diverse economy and high rental demand in both residential and commercial real estate. Which all, of course, means a high return on investment.
What makes Baltimore even more attractive is that it’s a market accessible to all investors. Unlike cities like New York City, Los Angeles, and San Francisco, you don’t need millions to get started. According to Trulia, the average property price in Baltimore is $210,000, which is below the national average.
How to Invest in Property: Choosing Commercial or Residential Real Estate
One of the biggest decisions when investing in the Baltimore market is to decide if you want to start with commercial or residential properties.
When you think of commercial properties, think places of business. There are sub-industries within the commercial real estate realm, but in general commercial real estate includes offices, retail stores and restaurants, industrial factories, and e-commerce hubs.
Residential properties are places of residence. This category is usually divided into single-family, multi-family, assisted living, and student housing. Residencies with more than four units are technically considered a commercial property, but investing in a rental home and apartments are very similar.
Identifying what your expectations are from a property will help you choose which type of real estate investment is best for you.
If you are taking out a loan to make an investment and need a monthly income to pay for the loan, you’ll want to choose an investment property that generates a reliable rental income. This is what most people think of when they think of an investment property, but it’s not the only option.
Investors can also get into investing by cashing-in on interest or “debt” accrued from loans. Investors can get together to put up cash for development and make money off of the loan interest. There are a handful of investment options that follow this, and a mutual fund model, which we’ll get into more below.
The last main type of investment style generates income off of property appreciation. Land is an example of this. Or a property in an “up-and-coming” area that will take time to begin generating income. Basically, with this type of investment, the investor relies on the belief that the value of this property will increase over time.
This type of investment can be incredibly rewarding but is also high-risk. If you happen to buy property in an area that becomes the next Seattle or Denver, you have the potential to make millions. However, this doesn’t happen to everyone. Not to mention that you can be sitting on a property for years or a decade before you see a profit. The good news about Baltimore is that it’s unlikely that property values will decline. The city is on the rise and looks to continue that trajectory.
Understanding Passive Investing Options
Passive investing is a term you’ll hear a lot when it comes to wealth building. Passive investing is simply having investments that make money themselves, with little to no time or “work” needed by the investor. This type of investment is ideal for those with day-jobs and other commitments who don’t have a lot of time to commit to an investment project.
Any type of property can be a passive investment if you hire a staff to manage it for you. However, traditional property types, like rental homes and apartment buildings, are “active investments” (which we’ll get into more below).
Traditionally, REITs, equity funds, and crowdfunding investments are passive investment options.
A private equity fund is a type of investment where a group of investors gets together to invest in a property. There is typically a designated manager of the fund who plays an active role in the operations of the property. The rest of the investors put their money in and assist with executive decision making.
These funds are typically for investors who have a high net-worth. They are also considered liquid investments, which means that they accrue profit over time. Unlike a rental building where an investor receives a monthly check from its tenants. Private equity funds show their return over long periods of time. To invest, you need to have enough money that you can allow to sit and grow for a while.
REITs act like a mutual fund in that they allow investors to buy shares of a company and earn income off its debt and equity. REITs are reliable investments that typically promise a positive return of investment over time.
Crowdfunding is a great option for investment beginners. It’s accessible to anyone. You can generate investment funds from as many investors as you need. It’s a great way to get started.
Choosing Active Investing
Active investing is not for the faint of heart. It’s a type of investing that requires the investor to roll up their sleeves and put in some time and real effort.
Active investing requires the investor to be an active participant in the operations of a property while using their knowledge of the market.
Common property investment styles like rental properties and house flipping are active investments.
People choose these for a handful of reasons. First, they are accessible to most people who can take out a loan or have the cash to pay for it. These types of investments also offer frequent rental payouts from tenants. Property investments like can also generate equity growth in growing markets overtime for investors.
However, these types of properties come with their challenges. For start, finding tenants can be competitive and challenging.
For example, there are a lot of options for today’s apartment renter. Maintaining a low vacancy rate for an apartment complex requires a frequent revaluation of amenities and incentives to get leases signed. Apartment leases are also short, meaning that you’re always working on getting new residents. However, According to pattaya properties, multifamily investments are some of the most promising.
Commercial industrial and retail spaces are typically signed to longer leases. Which can be a relief for investors. However, in the changing retail landscape, there are a lot of vacancies which equates to a lot of options for prospective tenants. It’s essential that property owners offer competitive amenities and invest in locations with impressive demographics.
There are also some commercial leases that place maintenance and property care into the responsibility of the tenant. This translates to fewer expenses needed from the property owner.
Getting Ready to Invest
Real estate is one of the most popular forms of investment for one reason: because it generates results.
Even though understanding how to invest in property can be challenging at the entry-level, once you get going, it can be a rewarding experience.
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I’m a single mother of 2 living in Utah writing about startups, business, marketing, entrepreneurship, and health. I also write for Inc, Score, Manta, and Newsblaze