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 it is your first time purchasing a property, you may be able to 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
Aside from the down payment, you also need to have cash available to pay closing costs. 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. Closing costs on an investment property can be a lot more than what you would pay for a primary residence. Experts estimate closing costs to be between 3% to 5% of the purchase price.
Renovation Costs
Actually, closing on your first rental property investment is just the beginning. As soon as you acquire the property, you have to spend some more to get the property ready for your first tenant. This is true even if your rental home is 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
Now that your property is ready, there are a few more initial expenses you should expect. 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 keep the security deposit and rent payments, and so on. A budget that includes both fixed and variable property expenses is also important since you may start paying for these before you get your first rent payment. While on their own, these expenses are not large, they can still add up. This is the reason why you have to set aside cash sufficient enough to launch your rental property efficiently.
You should also think about the benefits of getting a quality Stephens City property manager to handle the daily tasks involved in handling a rental property. Unlike what most people tend to wrongly believe, property managers can actually save money for you since they provide a lot of the convenience, tech, and services you would otherwise still pay for. They can also handle the maintenance calls as well as tenant relations. Contact Real Property Management Elevation today to learn more about how professional property management can help you get your investing career off to a great start.