Investing In Rentals? Three Things To Consider
by Luke Fields
Investing in rental properties is a great way to generate income. Whether it's a stand alone home or an apartment building, rental properties can be a great investment in many areas across the country. While rental properties can be a great way to make money, purchasing these investment properties can be different than purchasing a residential property. Investment properties also have expenses that residential homes do not. Before investing in rental properties here are a few things that investors should consider.
Financing
Getting financing for an investment property may not be quite as easy as getting financing for a residential property. First of all, a larger down payment is needed. Mortgage insurance will not cover investment properties. Most lenders will require a 20 percent down payment on a single family investment property and 25 percent down payment for a multifamily property. When financing properties, it's also important to know that there is a limit to how many can be financed at a time. The maximum number of simultaneously financed properties is 10. It's also important to note that many lenders will only finance up to 4 properties so finding one that will finance up to 10 may take some searching.
Property Management
One issue with rental properties is that they require maintenance. Many investors find themselves acting as landlords and doing it themselves. However, this can be too much work especially if the investor owns multiple properties. Hiring a property management company is a great way to ensure that the properties are being taken care of. The cost of property management usually runs between 4 and 10 percent of the monthly gross income of the property. While it can cut into monthly income from the property, hiring a property manager is often a good idea for investors with multiple properties or who live far away from their investment. Places like Management Associates can help with this.
Cash Reserves
Another thing to consider when investing in rental properties is cash reserves. Many lenders will require at least 6 months worth of mortgage payments in reserve for each investment property before lending out money for another investment property. This can easily add up to tens of thousands of dollars for many investors. This will ensure that the investor is able to make payments in the case of a lack of tenants or if the property is in need of repairs.
Investing in rental properties can be a great way to generate income but there are a few things to consider before making the jump into this type of real estate investing. Financing for rental properties often requires a larger down payment and there is a limit to how many investment properties can be financed at one time. Property management is a must for many investors, however, it can cut into profits. When investing in rental properties it's also important to have cash reserves. Many lenders will not finance a property without at least 6 months of mortgage payments in reserve for each property that has been financed.
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About Me
Welcome to my website. My name is Larry Silva, and I want to talk a bit about private mortgage insurance. You may have heard the term PMI mentioned when you were in the process of purchasing real estate. When I first heard my lender talking about PMI, I was very confused. It was my realtor who sat me down and explained what private mortgage insurance was and when someone is required to purchase it. He told me that PMI is not lifelong insurance; it can be cancelled when the mortgage principal balance reaches a certain point. Once it was explained to me, private mortgage insurance was no longer a mystery or a confusing concept. I would like to pass on what I learned and hope that you find it to be of value.