Buying rental properties is one of the best ways for an investor in Valley Stream to build wealth. But unlike other types of investments, there are often substantial starting costs. Obtaining a Valley Stream rental property is very capital-intensive. Although good financing will help you defray some of the costs, it is necessary to comprehend first what you are getting yourself into. The value of a rental property will vary from market to market, but there are lots of rental property costs that you can expect and prepare for no matter where it is.
The first thing that many people are worried about when thinking if they can afford to buy a rental property is the price of the home itself. And it is a good idea to start crunching the numbers. If you want to classify which markets you might want to explore, it is advisable to check the median listing price for properties in your chosen area. Let’s say, buying a rental property in New York City, New York, can easily run over a million dollars, while the median home price in San Antonio, Texas, is less than $300,000. By identifying the median house price in your market, you can get a better sense of which markets you might be able to afford.
Even though housing prices are a good place to start, It is imperative to consider many other rental property costs as a Valley Stream investor. Some of the most substantial costs are:
- Down Payment – Unless you’re paying cash for a property, it is vital to prepare to have enough money on hand for a down payment. Many conventional mortgages require roughly 10% and 25% of the purchase price.
- Closing Costs – The list of closing costs is long, including fees for everything from loan origination and attorney fees to appraisals, recording fees, and more. A good rule of thumb is to plan to pay around 2% and 5% of the purchase price.
- Property Taxes – While it is usually ignored, property taxes are also an important item to include in your budget. Property taxes depend on the estimated value of the property. In various counties, you can seek information on property taxes online.
- Repair and Maintenance Costs – Depending on the condition your property is in after you acquire it, you might need to fix it up before it’s ready for your tenants. It would be good if you also consider ongoing repair and maintenance costs, which are often around 5% of the property value annually.
- Association Fees – If your property is subject to an Owner’s Association or other governing board, you must factor monthly association fees into your total costs. These fees sometimes small or very high, depending on the type of amenities the community offers.
- Property Management Fees – Almost all Valley Stream investors preferr to have a trusted property manager, like Real Property Management Innovation, to provide the day-to-day tasks involved in owning a rental property. If you are one of them, it is suggested to include the cost of the property manager’s fee in your budget. Depending on who you hire, this fee could range anywhere from 8% to above 20%.
- Ongoing Capital Expenditures – All rental properties will need capital improvements over the years, and some are pricey compared to others. That is why it is important to plan for high costs, like a new roof or full window replacement, right from the start.
- Future Vacancies – No investor buys a rental property assuming it will sit empty for weeks or months, but it can and does happen. It’s essential to include the costs of an unexpected vacancy into your total ownership costs.
- Cash Reserves – If buying that rental property will lead you to be flat broke, you surely can’t afford it. You have to ensure that you have additional cash in reserve upon closing to avoid financial difficulties.
Although this list is by no means comprehensive, it does represent many of the major expenses. Some of them are things like insurance, legal fees, utility costs, real estate agent commissions, and so forth. By ensuring that you have all expenses accounted for, you can make smart investment decisions that will help safeguard the profitability of each rental property for years to come.
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