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How Much Money Do I Need to Start Investing in Real Estate?

Miniature House on a Pile of CoinsOne of the best ways to escape the daily grind –and build real wealth– is to invest in single-family rental properties. 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 you can take on this challenge with the right information and careful planning. Let’s take a closer look at how much money you really need to put up to buy your first Sherwood rental property.

Down Payment

First of all, you need to have a cash-down payment for your rental property. If you already own a residence, most lenders might require a minimum of 20% down, or in some situations, as much as 30%. If the property you want to buy is your very first purchase, 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

You also need to have cash available to pay closing costs in addition to a down payment. 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. Keep in mind that closing costs on an investment property can often 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. Once the property is yours, you will then incur costs to get the property ready for your first 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 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 keep a budget for your fixed and variable property expenses since you could be paying for them before you get your first rent payment. While on their own, these expenses are not large, however, 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 consider hiring a good Sherwood property manager who can handle the day-to-day tasks a rental property requires. Unlike what most people tend to wrongly believe, property managers can actually save money for you since they provide a lot of the convenience, tech, and services you would otherwise still pay for. They can also handle the maintenance calls as well as tenant relations. Contact Real Property Management Hometown 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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