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 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’s take a closer look at how much money you really need to put up to buy your first Katy rental property.
Down Payment
The first thing you need to have to buy a rental property is a cash down payment. If you already own a residence, the majority of lenders will require a down payment of around 20% to 30%. If it is your first time purchasing a property, you may 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
On top of 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. Closing costs on an investment property can be a lot more than what you would 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 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
Once your property is prepped 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. 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 may want to think about the advantages of hiring a good Katy property manager to handle the many 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 Affiliates 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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