One of the best ways to escape the daily grind –and build real wealth– is to invest in single-family rental properties. Since most of us do not have the luxury of million-dollar trust funds and wealthy sponsors, it can be challenging to come up with the amount of money needed to get started with your first rental property. The good thing is that you can take on this challenge with the right information and careful planning. Now, let’s take a closer look at how much money you need to come up with to buy your first Taunton rental property.
Down Payment
Of course, to buy a rental property, you need a cash down payment. If you already own a residence, the majority of lenders will require a down payment of around 20% to 30%. If the property you want to purchase is your very first, you could get a conventional loan with 15% down. This is the absolute minimum required under Fannie Mae. What usually happens is that a lender lends you up to 75% of the property’s purchase price, leaving you to look for the other 25% as a down payment.
Closing Costs
You also need to have cash available to pay closing costs in addition to a down payment. These costs can range from loan origination fees, appraisal and home inspection fees, mortgage insurance, title insurance, deed recording fees, property taxes, and notary fees. Keep in mind that closing costs on an investment property can often be more than what you’d expect to pay for a primary residence. Experts estimate closing costs to be between 3% to 5% of the purchase price.
Renovation Costs
Closing on your first rental property investment is just the beginning. Once the property is yours, you will then incur costs to get the property ready for your first tenant. This would still be true for rental homes that are new or in very good condition. Renovation and repair costs will differ based on the state of your property. However, most investment properties need a minimum of new paint, new carpeting, and getting the major systems inspected and serviced.
Operating Expenses
When your property is up and ready to go, you should expect a few more initial expenses. These are usually called “operational” expenses since they include things that form part of the regular operation of your rental property. For example, you’ll need to photograph and market your property, pay for background checks on applicants, prepare good quality lease documents (typically with the assistance of an attorney), set up accounts to hold the security deposit and rent payments, and so on. You also need to budget your fixed and variable property expenses since you may start paying for most of them even before you receive your first rent payment. While on their own, these expenses are not large, however, they can still add up. This is a good reason to set aside enough cash so you can efficiently launch your rental property.
You can also consider the benefits of hiring a quality Taunton property manager to handle the daily tasks a rental property requires. Contrary to common belief, property managers can actually save you money through the conveniences, tech, and services you will have to pay for anyway. They also take the burden of maintenance calls and tenant relations off your shoulders. Contact Real Property Management Success today to learn more about how professional property management can help you get your investing career off to a great start.
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