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, with the right information and careful planning, you can take on that challenge. Now, let’s take a closer look at how much money you need to come up with to buy your first Chevy Chase 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 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. Usually, a lender will only let you borrow up to 75% of the property’s purchase price, letting you come up with a down payment of about 25%.
Closing Costs
Aside from 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. Experts recommend anticipating closing costs of between 3% and 5% of the purchase price.
Renovation Costs
Closing on your first rental property investment is your official beginning to a new journey. 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. 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
Now that your property is ready to go, there are a few more initial expenses you should take into account. 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 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. It is a good idea to set aside enough cash to ensure that your rental property can be launched as efficiently as possible.
You may want to think about the advantages of hiring a good Chevy Chase 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 Washington DC 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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