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 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. Let’s take a closer look at how much money you really need to put up to buy your first Pacifica rental property.
First of all, you need to have a cash-down payment for your rental property. If you are a residence-owner, most lenders require a minimum of 20% down, sometimes 30% in certain situations. 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%.
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. According to experts, you should anticipate closing costs of between 3% and 5% of the purchase price.
Actually, 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 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.
Now that your property is ready, there are a few more initial expenses you should expect. Since they include things that form part of regular operations of a rental property, these can be called “operational” expenses. 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 keep a budget for your fixed and variable property expenses since you could be paying for them before you get your first rent payment. Taken individually, these expenses aren’t 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 should also consider hiring a good Pacifica property manager who can handle the day-to-day tasks a rental property requires. Unlike what most people believe, property managers can help you save money by providing the conveniences, tech, and services that you would have to pay for anyway, plus take care of maintenance calls and tenant relations as well. Contact Real Property Management Mid Peninsula 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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