Buying rental properties is one of the best ways for an investor in Greeley to build wealth. However, unlike other types of investments, there are often substantial starting costs. Buying a Greeley rental property is very capital-intensive. Although good financing can allow you to defray some of the costs, it is best to understand first what you are getting yourself into. The value of a rental property will vary from market to market, yet there are some rental property costs that you can expect and prepare for no matter where it is.
The first thing many individuals worry about when they’re considering if they can afford to buy a rental property is the price of the home itself. And it’s a good idea to start crunching the numbers. To get more details of which markets you might want to explore, it’s beneficial to search at 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 on the other hand, the median home price in San Antonio, Texas, is less than $300,000. By learning the median house price in your market, you can have a better sense of which markets you might be able to afford.
Although housing prices are a good place to start, there are many other rental property costs that you need to anticipate as a Greeley investor. Here are some of the most common expenses:
- Down Payment – Unless you’re paying cash for a property, you’ll need to prepare to have enough money on hand for a down payment. Many conventional mortgages demand 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 plan to compensate between 2% and 5% of the purchase price.
- Property Taxes – Although usually disregarded, property taxes are also an important item to include in your budget. Property taxes depend on the estimated value of the property. In some areas, you can find details on property taxes online.
- Repair and Maintenance Costs – Depending on the condition your property is in when you acquire it, you will need to fix it up before it’s ready for your tenants. It will benefit if you prepare for 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’ll have to factor monthly association fees into your total costs. These fees might be cheap or very expensive, depending on the type of amenities the community offers.
- Property Management Fees – Most Greeley investors want to get a trusted property manager, like Real Property Management of the Rockies, to manage the day-to-day tasks involved in owning a rental property. If this is your strategy, it’s necessary to include the cost of the property manager’s fee in your budget. It usually depends on who you recruit; this fee could range anywhere from 8% to above 20%.
- Ongoing Capital Expenditures – All rental properties may require capital improvements over the years, and some are more significant than others. It is important to plan for high costs, such as a new roof or full window replacement, right from the start.
- Future Vacancies – No investor buys a rental property assuming it’s going to sit empty for weeks or months, but it can, and it 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 make you flat broke, you probably can’t afford it. It’s vital to guarantee that you have some cash in reserve after closing to avoid financial difficulties.
Although this list is by no means comprehensive, it does represent many of the major expenses. Others might be 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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