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 Ammon 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. The usual scenario is that a lender will lend you only up to 75% of the property’s purchase price. You then have to come up with a down payment of about 25%.
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. You must remember that closing costs on an investment property could be more than what you’d expect to pay for a primary residence. Experts peg closing costs at 3% to 5% of the purchase price.
Renovation Costs
Closing on your first rental property investment is just the beginning. As soon as you acquire the property, you have to spend some more to get the property ready for your first tenant. This holds true even for rental homes that are new or in very good condition. Depending on the state of your property, your renovation and repair costs will vary. 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. Since they include things that are part of the regular operation of your rental property, you can call these “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 why it is wise to have enough cash set aside if you want to launch your rental property efficiently.
You can also consider the benefits of hiring a quality Ammon property manager to handle the daily 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 Southeast Idaho 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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