Buying rental properties is one of the best ways for an investor in South Roanoke to build wealth. However, unlike other types of investments, there are often substantial starting costs. Purchasing a South Roanoke rental property is very capital-intensive. Although good financing can help you defray some of the costs, it’s essential first to recognize what you are getting yourself into. The value of a rental property will vary from market to market, but there are several rental property costs that you can expect and prepare for no matter where it is.
The first thing many individuals are concerned about when contemplating if they can afford to buy a rental property is the price of the home itself. And it is a smart thought to start crunching the numbers. If you want to know which markets you might want to explore, it’s important to check the median listing price for properties in your chosen area. In particular, 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 acknowledging the median house price in your market, you can get a better sense of which markets you might be able to afford.
While housing prices are a good place to start, there are many other rental property costs that you need to manage for as a South Roanoke investor. Some of the most common of these expenses are:
- Down Payment – Unless you’re paying cash for a property, it is necessary to have enough money on hand for a down payment. Many conventional mortgages require around 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 get ready to spend around 2% and 5% of the purchase price.
- Property Taxes – While always ignored, property taxes are also an important item to include in your budget. Property taxes are depending on the estimated value of the property. In several areas, you can seek details on property taxes online.
- Repair and Maintenance Costs – Depending on the condition your property is in when you purchase it, you will have to fix it up before it’s ready for your tenants. It would be perfect if you also covered 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 could be inexpensive or very costly, depending on the type of amenities the community offers.
- Property Management Fees – Many South Roanoke investors intend to have a trusted property manager, like Real Property Management Colonial, who manage the day-to-day tasks involved in owning a rental property. If this includes your plan, don’t forget to include the cost of the property manager’s fee in your budget. It depends on who you will hire; this fee could range anywhere from 8% to above 20%.
- Ongoing Capital Expenditures – All rental properties will demand capital improvements over the years, and some are more expensive than others. Make sure you expect high costs, such as a new roof or full window replacement, right from the start.
- Future Vacancies – No investor buys a rental property thinking it will sit empty for weeks or months, but it can, and it really does happens. For this reason, it is necessary to include the costs of an unexpected vacancy in your total ownership costs.
- Cash Reserves – If buying that rental property will make you flat broke, you definitely can’t afford it. Please ensure that after closing, you have some cash in reserve to avoid financial difficulties.
Although this list is by no means comprehensive, it does represent many of the major expenses. Others probably things like insurance, legal fees, utility costs, real estate agent commissions, and so on. By ensuring 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.
Would you like to know more about how to calculate rental property costs accurately? We can help! Contact us online or give us a call at 540-595-7411.
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