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. Fortunately, this challenge is possible to tackle with the right information and thorough planning. Now, let’s take a closer look at how much money you need to come up with to buy your first Milton rental property.
Down Payment
First of all, you need to have a cash-down payment for your rental property. If you already own a residence, most lenders might require a minimum of 20% down, or in some situations, as much as 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. After acquiring the property, you will need to spend to get the property ready for your first tenant. This is true even if your rental home is 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 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. On its own, these expenses aren’t exactly large, but they do add up. This is the reason why you have to set aside cash sufficient enough to launch your rental property efficiently.
You may want to think about the advantages of hiring a good Milton property manager to handle the many tasks a rental property requires. 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 Boston 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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