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 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. Now, let’s take a closer look at how much money you need to come up with to buy your first North Charleston rental property.
The first thing you need to have to buy a rental property is a cash down payment. Most lenders will require around 20% to 30% down if you already own a residence. 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. 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.
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. Experts peg closing costs at 3% to 5% of the purchase price.
Closing on your first rental property investment means the beginning of a lot more things. 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. 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.
Once your property is prepped 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. While on their own, these expenses are not large, they can still add up. This is the reason why you have to set aside cash sufficient enough to launch your rental property efficiently.
You should also think about the benefits of getting a quality North Charleston property manager to handle the daily tasks involved in handling a rental property. Property managers can help save you money by providing the tech, conveniences, and services you would still be paying for anyway. In addition to that, they can also handle your maintenance calls and tenant relations. Contact Real Property Management Charleston 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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