One 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, 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 Manhattan 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 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. 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
Other than 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. 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 estimate closing costs to be between 3% to 5% of the purchase price.
Renovation Costs
Actually, 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 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
When your property is up 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 keep 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. On its own, these expenses aren’t exactly large, but they do 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 Manhattan property manager to handle the daily tasks involved in handling a rental property. 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 Bozeman 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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