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 Bar Harbor rental property.
Down Payment
First of all, you need to have a cash-down payment for your rental property. If you are a residence-owner, most lenders require a minimum of 20% down, sometimes 30% in certain situations. 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.
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. 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
Now that your property is ready, there are a few more initial expenses you should expect. 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 hold the security deposit and rent payments, and so on. A budget that includes both fixed and variable property expenses is also important since you may start paying for these 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 may want to think about the advantages of hiring a good Bar Harbor property manager to handle the many tasks a rental property requires. Contrary to common belief, property managers can actually save you money through the conveniences, tech, and services you will have to pay for anyway. They also take the burden of maintenance calls and tenant relations off your shoulders. Contact Real Property Management Acadia today to learn more about how professional property management can help you get your investing career off to a great start.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.