For some people, owning and operating, renting, real estate is a great idea, while for others, this might not be the case! The difference applies not only to the specific property, but also to the personality, attitude, and personal and specific strengths and weaknesses of each individual. Some factors include, of course, financial ones, including necessary, necessary, reserves to purchase a property, starting with the down payment, closing costs, reserves for repairs, upgrades, renovations, and contingencies. Also, some people are better suited to owning a rental property than others, because some don’t want the stresses and strains involved in this type of commitment. With this in mind, this article will attempt to consider, review, and briefly discuss some of the key factors and considerations that one should fully explore, in depth, before taking the jump.
1. Personal Finance: Do you have the necessary funds and will you qualify for any financing that may be required? Obtaining a mortgage on non-owner-occupied property is significantly different from the process, as it pertains to a personal home. In most cases, a larger down payment is required (often 25% down, rather than 20%). Also, the requirements differ, because not only do you have to clearly demonstrate, the same things you do, for a personal loan, you also have to demonstrate that the property is viable, from a financial point of view, and the rents will drive the Cash Flow. It is important to have several reserves, including: a) repairs; b) renewals; c) updates; contingencies, etc.
two. Financial problems of the property: I believe in the 6% rule, which means the net return must be 6%. For example, one factor is cash flow, while the other is overall rate of return or return on investment/ROI. So, if you buy a $500,000 property, put down $125,000, and have a $375,000 home loan, and the rate is 5%, your principal and interest, on a 30-year fixed-rate vehicle, will be approximately $2,000 per month. If property taxes and other escrow items, including insurance, etc., are, say, $12,000 per year or $1,000 per month, your total out-of-pocket, each month, is about $3 ,000. If you estimate, upgrades, repairs, etc., that’s another $12,000 per year ($1,000/month), you should use this figure of $4,000 per month, for your preliminary calculations. Also, base your income on having each unit, vacant/vacant, 2 months out of the year, to proceed conservatively. This means that you must charge rent – roll, total, for all units, of at least $4,250 per month. In addition, you must be sure that your net income must generate approximately $32,000 per year.
3. Deal with maintenance issues: Are you comfortable with these challenges and responsibilities?
Four. Dealing with tenants: Are you ready, willing, and able to deal with tenants and collect rents, enforce leases, meet a tenant’s needs, and the personality issues involved?
5. Opportunity costs: How does owning these properties (remember to factor in appreciation, depreciation, profits and net income) compare to other investment vehicles?
Is Owning Rental Property Right For You? Consider the advantages and obstacles, and proceed wisely.