Do you want to escape the daily grind and build real wealth? Investing in single-family rental properties might work for you if you do it correctly. 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. Fortunately, this challenge is possible to tackle with the right information and thorough planning. Let us see how much money you would need to prepare in order to buy your first Newport News 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 the property you want to purchase is your very first, you could 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. Closing costs on an investment property are often much higher than what you’d pay for a primary residence. Experts estimate closing costs to be between 3% to 5% of the purchase price.
Renovation Costs
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. Renovation and repair costs will differ based 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 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 budget your fixed and variable property expenses since you may start paying for most of them even before you receive your first rent payment. Taken individually, these expenses aren’t large, but they do add up. This is a good reason to set aside enough cash so you can efficiently launch your rental property.
You can also consider the benefits of hiring a quality Newport News 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 Dominion 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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