Investors have been very active in the market over the past two years, attracted mostly by discounted foreclosures that can quickly be converted into profitable rental. Many new investors want to know the true cost of owning a rental property before they dip their hands in.
While the rentals are certainly attractive, offering the promise of the monthly cash flow in addition to the long term appreciation, these investment properties have some included expenses which can either be visible or hidden.
The True Cost Of Owning A Rental Property
Principal and Interest
Also known as P I, principal and interest generally represent the largest part of your monthly payment, and are determined by factors such as your down payment, interest rates, home price and term length of your loan. But a number of other points should be considered to determine your actual monthly payment.
Rental Property Insurance
A home loan isn’t going to be approved by the lending company without insurance set up. Costs vary subject to your location, with the lowest annual premiums throughout Oregon at $576 plus the highest in Fl at $1, 991. The average annual premium across the country for 2015 was $952, which breaks to about $80 each month.
Property taxes for your home are determined in line with your local tax rate and also the assessed value of your home (You can learn more about this on Investopedia.com). Your broker or lender should be able to give you an idea of what the taxes for a specific House. You can also get a good estimate of looking up your local tax assessor’s Office for the County in which you buy and examining the tax rates of similar properties.
At the national level, the average American household spends $2089 on property taxes for their residences every year, not to mention residents of the 27 states with vehicle property taxes pay out an additional $423,” said WalletHub. Once you know the principal, interest, taxes and insurance, you can get a more accurate monthly payment on a home. But there are still a few other things that should be considered. Taxes are very important when figuring out the true cost of owning a rental property.
Many neighborhoods have a homeowner association (HOA) which will enforce community rules and supplies upkeep of facilities and common locations, at a cost to you, the homeowners. Depending on the figures on the community and the sheer numbers of amenities offered, monthly dues could range widely, as much as a few hundred dollars per month.
Conservation and Maintenance
Many people neglect to incorporate this in their figuring, imagining that the upkeep and support expenses will be practically identical to what they are now paying for their rental. But let’s be honest. They’re just not. You’re going to want to paint and to buy furniture and change your kitchen sink and hang curtains. You need to change your air filters and buy a new washing machine or fridge or knock down walls. Apart from this, some things will break. If you have a home warranty, insuring the big things, you will still have the cost of service visits to contend with, and a monthly or annual fee just for the policy. When figuring out the true cost of owning a rental property this is one of the biggest costs.
If you have less that 20% to put down on your home, expect to pay Private Mortgage Insurance (PMI).
Private mortgage insurance costs vary, depending on the size of the deposit and your credit score, of about 0.3% to about 1.5% of the original amount of the loan per year, said Bankrate.
Bankrate’s case study assumes a sales price of $180, 000 at 44 percent, which ultimately comes to $792 annually or $66 every month.
Saving your money and investing in a rental property is not easy or cheap, it takes hard work and determination. It isn’t impossible, thousands and thousands of people just like you are doing it right now. Click Here To Learn My Secret To Saving Money
You have to take action and commit to it. The cost of buying and owning a rental property is absolutely nothing compared to spending your entire life working at a 9 to 5 job. If you ready to take action subscribe to our email list, we will provide you with valuable information and provide you with step by step instructions on buying a rental property that will give you positive cash flow every single month. Take action now and start making your dreams reality.