Investing in single-family rental properties, when done correctly, is one of the best ways to build real wealth, as well as a good way to escape the daily grind. 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. Fortunately, this challenge is possible to tackle with the right information and thorough planning. Let us see how much money you would need to prepare in order to buy your first Sherman rental property.
Down Payment
Of course, to buy a rental property, you need a cash down payment. Most lenders will require around 20% to 30% down if you already own a residence. If this is your very first property purchase, you might be able to get a conventional loan with 15% down. This is the absolute minimum required under Fannie Mae. The more typical scenario is that a lender will only let you borrow up to 75% of the property’s purchase price, which means you 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. According to experts, you should anticipate closing costs of between 3% and 5% of the purchase price.
Renovation Costs
Closing on your first rental property investment is just the beginning. Once you have acquired the property, you have to get it ready for your next tenant. This would still be true for rental homes that are new or in very good condition. The renovation and repair costs will be different depending 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 keep 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 should also think about the benefits of getting a quality Sherman property manager to handle the daily tasks involved in handling a rental property. Property managers can help save you money by providing the tech, conveniences, and services you would still be paying for anyway. In addition to that, they can also handle your maintenance calls and tenant relations. Contact Real Property Management Legend 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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