One of the best ways to escape the daily grind is to invest in single-family rental properties. When done correctly, you could also build real wealth. Since the majority of us don’t have million-dollar trust funds or wealthy sponsors, coming up with the money to start your first rental property can be a real challenge. The good thing is that, with the right information and careful planning, you can take on that challenge. Now, let’s take a closer look at how much money you need to come up with to buy your first Hillsdale rental property.
Down Payment
The first thing you need to have to buy a rental property is a cash down payment. Most lenders will require around 20% to 30% down if you already own a residence. 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. The usual scenario is that a lender will lend you only up to 75% of the property’s purchase price. You then have to come up with a down payment of about 25%.
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. You must remember that closing costs on an investment property could be more than what you’d expect to pay for a primary residence. Experts recommend anticipating closing costs of between 3% and 5% of the purchase price.
Renovation Costs
Closing on your first rental property investment is just the beginning. After acquiring the property, you will need to spend 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. The renovation and repair costs will depend 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 called “operational” expenses since these things are 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 make a budget that includes the fixed and variable property expenses, most of which you may need to start paying for even before you get your first rent payment. On its own, these expenses aren’t exactly large, but they do add up. This is why it is wise to have enough cash set aside if you want to launch your rental property efficiently.
You may want to think about the advantages of hiring a good Hillsdale property manager to handle the many 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 Concierge 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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