The monthly cash flow and long-term appreciation make a rental property an appealing investment. But, before jumping in, there are some things to consider. First, look at your income and expenses to determine whether or not you can actually afford an investment property. Now, let’s say you’ve done the calculations and it does appear that an investment property in Austin is something you can afford– that still may not be the case. As a first-time investor, you may be forgetting several expenses. What costs should you take into consideration? Here are several costs you should expect with an investment property:
Down Payment and Interest Rate
A down payment of at least 20 percent is required to purchase an investment property – and if you put down 25 percent, you can qualify for an even better interest rate.
If you had to take a loan out for the investment property, ensure you can afford the monthly mortgage payment on top of any payment you may have for your permanent residence. Contact a mortgage lender for an accurate estimate of this value.
Often overlooked, property taxes vary by state and are typically paid twice a year. Be sure to take this cost into consideration when you are determining whether or not you can afford an investment property. Contact the municipality to determine what the property taxes are in the city where you are looking to purchase the property.
Homeowner’s Association Fees
Chances are, the property’s neighborhood will require association fees for community features (pools, parks, etc.) and maintenance (lawn care, etc.). Factor this number into your budget – the fees can be monthly, quarterly or yearly. Also, check with the association to ensure they don’t have any rules against using the property as a rental.
How do you plan to handle utilities? Are you considering including the cost of some utilities in the rental price? If so, be sure to get an estimate from the utility companies to determine how much to add to the rental price. Keep in mind; if your property is vacant, you will be responsible for paying all utility fees.
The rental property will require some maintenance. Budget 10 to 15 percent of the annual property rent for maintenance and upkeep of the property. Keep in mind; maintenance can be managed by a property management company.
Searching for tenants requires time and money. Not only do you need to market your property, but you will also need to run credit and background checks to determine if the tenants are good for the rent. To cut down on time and ensure you find good tenants, consider hiring a property management company. They have the resources and skills to find reliable tenants.
Figure that your rental property will be vacant at least two months out of the year – to be on the safe side. For those two months, you won’t have any income coming in and you will be responsible for all monthly payments associated with the property. Be sure you can afford a vacancy – if it does happen. To decrease the likelihood of vacancies, hire a property management company to find tenants for your property!
Have you entered all of these costs into your spreadsheet? Does an investment property still seem like a possibility? If so, we would be honored to help you locate and manage an investment property in the Austin area! Give us a call anytime.