One of the best ways to escape the daily grind –and build real wealth– is to invest in single-family rental properties. Knowing that many of us are not born into families with million-dollar trust funds or have wealthy sponsors, it can be a challenge 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. Let us see how much money you would need to prepare in order to buy your first Smithfield 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. 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
Other than 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. 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 your official beginning to a new journey. 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
Now that your property is ready to go, there are a few more initial expenses you should take into account. 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 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. While on their own, these expenses are not large, however, 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 Smithfield 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 Cache Valley 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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