Buying a Rental Property You Can Afford
Buying a Rental Property You Can Afford
Real estate investing can be a great way to develop wealth and generate additional income over time, but it is also one of the more capital-intensive investments you can do. When it comes to owning rental properties, while you can get started with just a few hundred dollars in stock or mutual fund investment, this is just not the case.
Closing costs
Closing fees vary widely, and they are often greater on investment properties than on primary residences. Investment property mortgages also have higher origination fees. Closing fees vary widely and commonly range from 2% to 5% of the property's sale price, while greater closing charges are not uncommon.
Reserves
If you get a mortgage for your rental property, your lender will usually want a minimum reserve amount of six to twelve months' worth of mortgage payments. This is a solid start, but you should err on the side of caution and save more money than you think you'll need. Perhaps your property will be empty for a few months after you purchase it.
Repairs
If you buy a rental property that is completely rent-ready and in excellent condition, you won't have to worry about this, but if you buy one that needs work, make sure you budget for it. Even though the property appears to be in good functioning order, your inspection report may indicate the need to budget for repairs.
Down payment
Although the down payment is the most visible upfront expenditure associated with the acquisition of a rental property, many new investors are unsure how much to budget for. Most lenders need a down payment of at least 25%, especially on multi-unit residential properties. You can buy a multi-unit property and reside in one of the apartments, which qualifies you for owner-occupied mortgages with modest down payments.
A variety of factors influence the affordability of rental properties. It's not enough to have enough cash in the bank right now. You must be certain that your financial situation is sound enough to invest, that you can handle all of the costs of purchasing a property with a buffer in case something goes wrong, and that the rental property will not deplete your savings once you purchase it.
Planning to buy, sell, or invest in any property type in Florida? Here at Miami International Investments, we pride ourselves on giving our customers the best experience and we know how to navigate this challenging market. We also offer property management services and assistance to both buyers and sellers. I'm Betsy Tinervin, your local Real Estate Expert, and here for anything you need so let's connect & I look forward to hearing from you.
