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

One of the best ways to escape the daily grind –and build real wealth– is to invest in single-family rental properties. 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 Tulsa rental property.

Down Payment

Of course, to buy a rental property, you need a cash down payment. If you already own a residence, most lenders might require a minimum of 20% down, or in some situations, as much as 30%. If this is your very first property purchase, you might be able to get a conventional loan with 15% down. This is the absolute minimum required under Fannie Mae. The more typical scenario is that a lender will only let you borrow up to 75% of the property’s purchase price, which means you have to 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 your official beginning to a new journey. Once the property is yours, you will then incur costs to get the property ready for your first 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

Now that your property is ready to go, there are a few more initial expenses you should take into account. These are usually called “operational” expenses since they include things that form 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 hold the security deposit and rent payments, and so on. You also need to keep a budget for your fixed and variable property expenses since you could be paying for them before you get your first rent payment. Taken individually, these expenses aren’t large, but they do 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 Tulsa property manager to handle the many tasks a rental property requires. Property managers can help save you money by providing the tech, conveniences, and services you would still be paying for anyway. In addition to that, they can also handle your maintenance calls and tenant relations. Contact Real Property Management Abound today to learn more about how professional property management can help you get your investing career off to a great start.