How Much Money Do I Need to Start Investing in Real Estate?

Do you want to escape the daily grind and build real wealth? Investing in single-family rental properties might work for you if you do it correctly. Knowing that many of us are not born into families with million-dollar trust funds or have wealthy sponsors, it can be a challenge to come up with the amount of money needed to get started with your first rental property. Fortunately, this challenge is possible to tackle with the right information and thorough planning. Let us see how much money you would need to prepare in order to buy your first Stockbridge rental property.

Down Payment

First of all, you need to have a cash-down payment for your rental property. Most lenders will require around 20% to 30% down if you already own a residence. If it is your first time purchasing a property, 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

You also need to have cash available to pay closing costs in addition to a down payment. 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 are often much higher than what you’d pay for a primary residence. Experts estimate closing costs to be between 3% to 5% of the purchase price.

Renovation Costs

Closing on your first rental property investment is just the beginning. Once the property is yours, you will then incur costs to get the property ready for your first tenant. This is true even if your rental home is new or in very good condition. Depending on the state of your property, your renovation and repair costs will vary. However, most investment properties need a minimum of new paint, new carpeting, and getting the major systems inspected and serviced.

Operating Expenses

Now that your property is ready to go, there are a few more initial expenses you should take into account. Since they include things that are part of the regular operation of your rental property, you can call these “operational” expenses. 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. You also need to make a budget that includes the fixed and variable property expenses, most of which you may need to start paying for even before you get your first rent payment. Taken individually, these expenses aren’t large, but they do add up. It is a good idea to set aside enough cash to ensure that your rental property can be launched as efficiently as possible.

You may want to think about the advantages of hiring a good Stockbridge property manager to handle the many tasks a rental property requires. Unlike what most people believe, property managers can help you save money by providing the conveniences, tech, and services that you would have to pay for anyway, plus take care of maintenance calls and tenant relations as well. Contact Real Property Management Anchor today to learn more about how professional property management can help you get your investing career off to a great start.