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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 is to invest in single-family rental properties. When done correctly, you could also build real wealth. Since the majority of us don’t have million-dollar trust funds or wealthy sponsors, coming up with the money to start your first rental property can be a real challenge. The good thing is that, with the right information and careful planning, you can take on that challenge. Now, let’s take a closer look at how much money you need to come up with to buy your first Dallas 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 the property you want to buy is your very first purchase, you may 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

Aside from 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. Closing costs on an investment property can be a lot more than what you would 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 you have acquired the property, you have to get it ready for your next tenant. This would still be true for rental homes that are 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

Once your property is prepped and ready to go, you should expect a few more initial expenses. These are called “operational” expenses since these things are part of the regular operation of your rental property. 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 keep the security deposit and rent payments, and so on. A budget that includes both fixed and variable property expenses is also important since you may start paying for these before you get your first rent payment. While on their own, these expenses are not large, they can still add up. This is a good reason to set aside enough cash so you can efficiently launch your rental property.

You may want to think about the advantages of hiring a good Dallas property manager to handle the many tasks a rental property requires. Contrary to common belief, property managers can actually save you money through the conveniences, tech, and services you will have to pay for anyway. They also take the burden of maintenance calls and tenant relations off your shoulders. Contact Real Property Management One Source 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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