Buying rental properties is one of the best ways for an investor in Rehoboth Beach to build wealth. However, as opposed to other types of investments, there are often substantial starting costs. Getting a Rehoboth Beach rental property is very capital-intensive. Although good financing can allow you to defray some of the costs, it is essential to understand first what you are getting yourself into. The value of a rental property will vary from market to market, but there are certain rental property costs that you can expect and prepare for no matter where it is.
The first thing that many people care about when thinking if they can afford to buy a rental property is the price of the home itself. And it’s not a bad place to start crunching the numbers. If you want to get an idea of which markets you might want to explore, it’s helpful to check the median listing price for properties in your chosen area. For example, 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 discovering 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 do in advance as a Rehoboth Beach investor. Here are some of the most important costs:
- 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. A lot of conventional mortgages demand between 10% and 25% of the purchase price.
- Closing Costs – The list of closing costs is wide; it involves fees for everything from loan origination and attorney fees to appraisals, recording fees, and more. A good rule of thumb is to plan to pay around 2% and 5% of the purchase price.
- Property Taxes – Although mostly overlooked, property taxes are also an important item to include in your budget. Property taxes are calculated based on the estimated value of the property. In several counties, you can locate information on property taxes online.
- Repair and Maintenance Costs – Depending on the condition your property is in after you buy it, you will need to fix it up before it’s ready for your tenants. It would be great if you also plan 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 little or very high, depending on the type of amenities the community offers.
- Property Management Fees – Lots of Rehoboth Beach investors chose to get a trusted property manager, like Real Property Management Diamond, to operate the day-to-day tasks involved in owning a rental property. If this is one of your plans, it is reasonable to include the cost of the property manager’s fee in your budget. Depending on who you hire, this fee could range anywhere from 8% to above 20%.
- Ongoing Capital Expenditures – All rental properties will need capital improvements over the years, some of which are more costly than others. It is imperative to prepare for high costs, like a new roof or full window replacement, right from the start.
- Future Vacancies – No investor buys a rental property, thinking it’s going to sit empty for weeks or months, but it does happen, and you can’t anticipate it. It is helpful to include the costs of an unexpected vacancy in your total ownership costs.
- Cash Reserves – If buying that rental property will make you flat broke, you probably can’t afford it. It is important to ensure 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 will be things like insurance, legal fees, utility costs, real estate agent commissions, and more. 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.
Would you like to know more about how to calculate rental property costs accurately? We can help! Contact us online or give us a call at 302-313-7700.
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