Buying rental properties is one of the best ways for an investor in Calabasas to build wealth. But unlike other types of investments, there are often substantial starting costs. Acquiring a Calabasas rental property is very capital-intensive. Although proper financing can help you defray some of the costs, it’s critical first to realize what you are getting yourself into. The value of a rental property will vary from market to market, yet there are various rental property costs that you can expect and prepare for no matter where it is.
The first thing a lot of people care about when wondering if they can afford to buy a rental property is the price of the home itself. And it is a good idea to start crunching the numbers. If you want to discover which markets you might want to explore, it’s necessary to analyze the median listing price for properties in your chosen area. For instance, buying a rental property in New York City, New York, can easily run over a million dollars, while the median home price in San Antonio, Texas, is less than $300,000. By monitoring the median house price in your market, you can get 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 prepare for as a Calabasas investor. Some of the most popular of these expenses include:
- 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. Nearly all conventional mortgages require approximately 10% and 25% of the purchase price.
- Closing Costs – The list of closing costs is long, ranging from fees for everything from loan origination and attorney fees to appraisals, recording fees, and more. A good rule of thumb is to plan to compensate roughly 2% and 5% of the purchase price.
- Property Taxes – While frequently disregarded, property taxes are also an important item to include in your budget. Property taxes depend on the estimated value of the property. In many counties, you can seek information on property taxes online.
- Repair and Maintenance Costs – Depending on the condition your property is in when you get it, it is important to fix it up before it’s ready for your tenants. It would be perfect to 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 need to factor monthly association fees into your total costs. These fees might be cheap or costly, depending on the type of amenities the community offers.
- Property Management Fees – Lots of Calabasas investors prefer to employ a trusted property manager, like Real Property Management West San Fernando Valley, to accomplish the day-to-day tasks involved in owning a rental property. If this is part of your plan, it is imperative 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 require capital improvements over the years, some of that can be more expensive than others. It is vital to get ready for big ticket items, such as a new roof or full window replacement, right from the start.
- Future Vacancies – No investor buys a rental property thinking it will sit empty for weeks or months, but indeed, it can and it will happen. That is the reason you need 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’s significant to make sure that you have some cash in reserve after finishing the transaction to avoid financial difficulties.
While this list is by no means comprehensive, it does represent many of the major expenses. There might be things like insurance, legal fees, utility costs, real estate agent commissions, etc. By ensuring 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.
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