Time and again you hear financial advisors extolling the virtues of investing in real estate. It provides reasonably passive income and helps you build your personal wealth. Certainly, investment properties serve as a cornerstone in our portfolios, and we encourage others to do the same. But buying rental property becomes a very different experience than buying a personal home.
If you’re just getting started, it’s easy to wonder: can I afford to buy rental property?
Capital Commitments
When purchasing a primary residence, lenders offer buyers a variety of loan options. For example, certain loan structures like FHA loans allow buyers to put down as little as 3.5 percent. In addition, VA loans allow for zero down. But when a house is not meant to be a residence, the rules become much stricter.
When buying investment property, as a rule of thumb, owners must have at least a 20 percent down payment amount. They must also pay all closing costs up front and have several months of reserve cash on hand. Potential lenders want to ensure you have enough secured capital to limit their risk in funding your real estate investment business.
Time Commitments
Unlike other forms of real estate investment, renting property is much more hands on. This is especially true if you plan to become a landlord without the support of a rental management company. You will need to prep, show, and manage leasing for the rental home. Next, you will need to collect rent and take emergency and maintenance calls (at all hours).
Many landlords feel confident in their ability to do the maintenance work on their own. Depending on the home, however, this can quickly become far more intense than they anticipate.
A good property management professional firm can cut down on the time and energy you spend on upkeep of your real estate investment. A good property manager—like ours at The Realty Medics – can bring your time commitment down to next to nothing. Having a property management company, for instance, to conduct all the marketing, paperwork, and basic maintenance is property management peace of mind.
Real Estate Crowdfunding
Want to know how to find real estate investors to help you purpose your rental property? A few new options have cropped up that allow investors an easier runway into purchasing rental property. One that has gained popularity is real estate crowdfunding.
Similar in concept to a Go Fund Me page, crowdfunding pools the resources of multiple people towards one common goal.
Here’s how it works:
A sponsor (without sufficient capital on his/her own) lists a business proposition on a crowdfunding platform. Interested investors pledge their funds in exchange for equity in the investment. These arrangements usually include a target holding period that provides a timeframe for the entire investment.
Initial returns are pretty promising, but frankly, these are still a very new form of real estate investing.
Property Management Companies Near You
You should know that every type of real estate investment comes with its own set of pros and cons. And every investor comes with his/her own set of unique circumstances. Still find yourself asking: can I afford to buy rental property? You may be surprised by the answer!
To get started, call The Realty Medics at (321) 218-4753 or complete our online form to discuss your rental property goals with one of our experts.
