Would Owning a Rental Home Be a Good Fit? The Self-Check List

  • Author: Devin Henry
  • Last Updated: May 16, 2023
Table of Contents

Key takeaways:

  • Why you should own a rental home in Washington, D.C.
  • Six things to consider before purchasing a rental property
  • Challenges you are likely to face while owning a rental home

A rental income real estate property could be a single-family, multifamily, or commercial lease property. A property owner can increase the property’s worth by holding on to it and enhancing, renting, and accumulating equity. Historically, long-term property values have increased, resulting in a very rewarding investment.

Investing in rental properties is an excellent way to begin if you are a real estate novice. It will help you build long-term wealth and position you for a financially secure future if you take the required steps and plan appropriately. Also, the unusual combination of capital appreciation, continual income flow, and considerable tax advantages make rental property ownership a formidable investment strategy.

However, owning a rental property necessitates substantial labor, especially if you opt not to engage a property management company. Dealing with and evicting tenants, late-night maintenance calls, and locating the ideal property are just a few of the obstacles that rental property investors confront frequently. 

This article explores the things you should keep in mind before purchasing a home. But first, let’s explore why owning a rental home in Washington, D.C., is worth it.

Why You Should Own a Rental Home in Washington, D.C.

Washington, D.C., has a rich history. Wealthy, affluent families formerly owned most of the properties in in the region, many of whom had ties to local and federal politics. Even though most homes have undergone repairs and restorations, their historical relevance has not been compromised. The median price of a property in the Washington, D.C., metropolitan area has increased by a staggering 20% over the past decade, which makes the area good for investment. The market is dynamic because investors can choose from gorgeously refurbished homes or move-in ready new builds.

Six Things To Consider Before Purchasing a Rental Property

A rental home purchase can be a wise financial move, but being a landlord isn’t for everyone. Before purchasing a rental property, here are the things you should keep in mind.

1. Pay Off Your Debt

Taking on the financial load of a rental property may not be the greatest option if you already have a lot of debt to pay each month, including school or medical expenses. To proceed, it’s recommended that you have a financial safety net in place.

2. Make Sure You Have What It Takes To Be a Landlord

Take some time to ask yourself if you have what it takes to be a landlord. A challenging tenant may test your patience. Do you mind someone calling you at 2 a.m. to clear out a clogged toilet? Hiring a property manager could be an excellent option if you have the financial resources. Still, if you’ve done it before, you can always continue managing your property. 

3. Secure a Down Payment

Getting a loan for a rental property is harder than a primary residence. To qualify, you’ll need to put down at least 20% of the value of your rental property. Therefore, make sure you have the amount saved to pay the down payment. 

4. Choose Between Buying and Financing a Rental Home

Think about buying a rental property outright versus getting a mortgage. You can generate positive cash flow immediately if you pay cash for a rental property. Sadly, not everyone can afford to pay so much right away.

A better return can be possible with the help of a mortgage. With a 20% down payment and a low interest rate, the annual return on your investment could be higher than if you had purchased the home outright. It’s important to consider how much money is coming in each month and how much you’ll make back.

5. Consider the Condition of the Property

There’s nothing wrong with purchasing a property that needs some repairs, but you should be aware of the financial and time commitments involved. Ask yourself how many improvements you can handle on your own after a professional inspection is done and consider what would require hiring outside professionals. Inquire about costs before hiring a professional service for a large undertaking. If the costs seem unreasonable, consider purchasing another property.

6. Consider the Unexpected Costs

While increasing your wealth is the primary goal when investing in a rental property, you should have a reserve fund for maintenance and repairs. Do the math on what it would cost to replace the house’s essentials like the roof, HVAC system, and water heater. Save a large sum as a safety net. Always have that sum on hand in a checking or savings account. Alternatively, you could have someone you can always count on to help if you don’t have enough money for safety net.

Considering these items before moving forward will help you determine whether owning a rental property is the right path and set you up for the most success.

Challenges You Are Likely To Face Owning a Rental Home

Owning a rental home will not be a walk in the park. Here are a few challenges you are likely to face.

  • Difficulty finding the right property
  • Difficulty finding tenants
  • Property damage
  • Increased interest rates
  • Rent collection and defaults
  • Tenant lawsuits

If you are well prepared and ready to handle the unexpected, you will likely make good money owning rental property in retirement or even at a young age.

Get Help Managing Your Rental Property

It doesn’t hurt to ask for help from property managers whose only work is managing properties, even if you’re capable of doing it on your own. At Nomadic Real Estate, we can help you find the best properties in Washington, D.C., or manage your existing property.

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Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

Owner Portal Reports
  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

Enhanced Rent Roll Report
  • The Enhanced Rent Roll Report will show the rent amount, last payment date, move-in date, lease expiration date, and security deposit amount for each of your tenants. 
  • It will also show a portfolio summary with occupancy percentage, vacancy loss, and more!

Unit Comparison Report:

Unit Comparison Report
  • If you own multiple units (or buildings) with Nomadic, you’ll get access to the Unit Comparison Report. 
  • This report enables you to quickly compare financial performance between your units at a glance without toggling between individual reports. 

Income Statement Month-Over-Month:

Income Statement by Month Report
  • The Income Statement Detail – Monthly Report serves as a month-over-month record of portfolio performance. You’ll see itemized income and expense categories and can track monthly. This report will update with fresh data every time you view it. 

Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

Scroll down for more info about the Financial Statements in your Documents library:

The Documents area contains monthly financial statements:

Owner Portal Documents
  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

Owner Portal Property Statement

You'll also find a month-over-month operating statement:

Month over Month Statement

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

Commincation Dashboard Screenshot
  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Owner Portal New Message Screenshot

Responses will show up in the conversation ticket:

Portal Conversation Response Screenshot
  • You’ll get an email notification whenever you get a response, and you’ll also see the message in your portal next time you log in. 

You can reply in-line using the comment box:

Owner Portal Comment

Each conversation will be logged in its entirety:

Portal Conversation Snapshot

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

Owner Ledger Dates
  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

Ledger Property Column
  • You can filter the ledger to look at just one property, all properties, or specific sets of properties. 
  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

Owner Ledger Description Column
  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

Owner Ledger Amount Column
  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

Owner Ledger Account Balance Column
  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

PW Portal Filters

View a snapshot of income and expenses on your dashboard:

PW Owner Dashboard View

See every transaction in real-time on your ledger:

Owner Portal Ledger View

Statements and forms will be posted to your documents library:

Owner Portal Document Library

View a suite of real-time financial reports:

Portal Reports View

See a running list of all bills, and drill down for more detail:

Owner Portal Bills View

Under Bill Details, you'll find dates/descriptions/amounts and more:

Portal Bill Details

You can also communicate with your Account Manager through the portal:

Owner Portal Communication Tools

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

Net Distribution

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.