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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 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 Hamilton 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. 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

On top of 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. According to experts, you should anticipate closing costs of between 3% and 5% of the purchase price.

Renovation Costs

Closing on your first rental property investment means the beginning of a lot more things. Once the property is yours, you will then incur costs to get the property ready for your first tenant. This holds true even for rental homes that are 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

Once your property is prepped 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 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 can also consider the benefits of hiring a quality Hamilton property manager to handle the daily 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 Indianapolis Metro 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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