There are lots of people who are looking for a way to diversify their investments. If you want to diversify your investments, you might be thinking about investing in real estate. For many people, investing in a rental property feels like a dream that is a long way away. Fortunately, if you plan ahead, purchasing and managing a rental property is easier than you think. Because there are a lot of expenses that can add up quickly, you need to make sure you have enough money set aside. For example, even once you own a rental property, you should allocate approximately a quarter of the rental income you receive for ongoing costs and maintenance.
What are a few of the biggest costs you need to think about if you plan on owning a rental property in the future?
Plan Ahead of the Down Payment
If you want to purchase a rental property, you need to have enough money set aside for a down payment. There are lots of programs available for people who are purchasing a house for the first time that give them an opportunity to purchase a house for less than 20 percent down.
If you are purchasing a rental property, these options are generally not available to you. The vast majority of lenders are going to prefer that you have at least 20 percent of the property’s purchase price set aside for a down payment. It is possible for you to purchase a rental property with less money, but it means that you will probably have to take out mortgage insurance. The lender may also charge you a higher interest rate because they believe you are a greater risk to them. Keep in mind that you might already be paying a higher interest rate on a rental property loan because you are purchasing a rental property.
Think About Lender Fees and Closing Costs
Do not forget that there will be some lender fees that you have to pay. For example, the lender may charge you an origination fee, which is a fee that you will have to pay the lender because they are drawing up the paperwork for you. You might also have to pay a monthly loan service fee, so be sure to read your agreement carefully to understand what your contractual obligations might be.
There are some lenders that charge fewer fees than others. If you ask around, you might be able to get a better deal, which may include waived fees.
The Home Inspection and Appraisal
As you go through the purchase process, two of the biggest fees that you will have to pay are the home inspection cost and the home appraisal cost. You are not required to get a home inspection to purchase a rental property; however, it is generally better for you to do so. You need to get a home inspection because you need to figure out what repairs you might need to do to the property before you start renting it out. There are some repairs that you might have to do to bring the property up to code. Then, there are other repairs that you might want to do if you want to charge more money for your rental property.
If you plan on taking out a loan for your rental property, the lender will probably require you to get an appraisal. The appraisal is important because it gives the lender some idea of how much the property is actually worth. If the appraisal is lower than what you are paying for the property, there is a chance that the lender may try to raise the interest rate or ask you to bring more cash to the closing table.
Will You Hire a Property Management Company?
There are a lot of people who believe that owning a rental property is a great source of passive income. It is true that you may not have to spend eight hours a day managing your rental property, but you will still have to do some work to keep it intact. For example, you may need to call some maintenance professionals from time to time to work on the roof, hot water heater, and HVAC unit.
Or, you might need to handle a complaint from the renter related to the floors or walls. This can be quite a bit of work, and you might not want to do this on your own. This is particularly true if you have a day job already. Therefore, you may want to hire a property management company to help you. A property management company can be expensive, and it is not unusual for a property management company to charge 10 percent of your rent to manage your property for you. Make sure you understand exactly what the property management company will do, as you want to make sure they are actually saving you time.
Emergency Repairs Can Come Up From Time To Time
If you have a primary residence, you understand just how important it is to have money set aside to cover emergency repairs. You need to do the same thing if you plan on owning a rental property. You never know when you will have to make an emergency repair, and you will have to deal with the issue quickly if you don’t want your renter to get frustrated.
For example, there might be a severe storm that comes through and puts a hole in the roof. Or, the hot water heater might spring a leak, which can lead to a tremendous amount of water damage. Regardless of the nature of the repair, you will need to have money set aside to handle it right away. Otherwise, you may have to take out an emergency loan, which can feature a very high interest rate. By planning ahead, you can save money.
Contact Hard Money Lenders AZ for Help Financing Your Rental Property
Even though owning a rental property can be expensive, there are professionals available who can help you finance your rental property. We are Hard Money Lenders AZ, and we have already helped countless people make their rental property dreams come true. We have a variety of loan options available to you, and we can customize them to meet your needs. A member of our team is always available to assist you, so give us a call today to get the process started. Take a look at our financing options, speak to our team, and let us help you find the right rental property to meet your needs.