Real estate investments are among the smartest money moves you can make. While additional sources of income are always good, real estate requires a lot of money up front. With ongoing operating expenses like property taxes and mortgage payments to consider, costs can quickly balloon. We’re here to help you determine if you can afford to buy an investment property.
Down Payment
Everyone knows about the down payment, but not all investors know how much a down payment will cost them. For safety, prepare to pay at least 25 percent up front—if it ends up being less, great! Lenders traditionally require at least a 20 percent down payment unless you’re an exceptionally well-qualified buyer looking to purchase single-family homes.
Closing Costs
While sellers may sometimes agree to pay closing costs, this expense usually rests on the buyer’s shoulders. These figures can vary dramatically depending on the property, but you should budget at least five percent of the final sale price.
Repairs
This factor is essential to consider for any house-flippers out there. Some properties come rent-ready, but more often than not, you’ll need to pay for repairs. Bring a contractor with you when you tour a property to get a sense of how much the renovations could cost. Even if a property appears to be in working order, issues may lurk just below the surface.
Reserves
When you get a mortgage for a rental property, your lender typically wants to see a minimum balance in reserves. This number will usually be somewhere from six to twelve months of mortgage payments. Try to have more money in the bank than you think you need to account for any surprises along the way.
Now that you know whether you can afford to buy an investment property, check out these investment properties in Nashville, TN. They could be exactly what you’re looking for!
