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

Miniature House on a Pile of CoinsDo 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. Since most of us do not have the luxury of million-dollar trust funds and wealthy sponsors, it can be challenging 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 Oak Forest 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 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. The more typical scenario is that a lender will only let you borrow up to 75% of the property’s purchase price, which means you have to come up with a down payment of about 25%.

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. Closing costs on an investment property are often much higher than what you’d pay for a primary residence. Experts recommend anticipating closing costs of between 3% and 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 form part of regular operations of a rental property, these can be called “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. 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. It is a good idea to set aside enough cash to ensure that your rental property can be launched as efficiently as possible.

You should also consider hiring a good Oak Forest property manager who can handle the day-to-day 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 Heritage 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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