You often hear analysts say "run the numbers before buying an investment property" but what do they really mean? Running incorrect numbers can cost you hundreds even thousands of dollars monthly. Below are a list of the "numbers" to consider.....
RENTAL INCOME
Rental income is not black and white. Often times, current rent rolls do not reflect true market values. Consider comparable leases for the neighborhood and size of your unit. Your local newspaper or real estate agent could offer insight in this area
MORTGAGE COSTS
The interest from your mortgage will more than likely absord the lionshare of what would otherwise be your profit. Be clear on the details of your loan options and estimate interest rates before considering your profit; it could make the difference between a good and bad investment. Keep in mind that 4+ family properties are considered commercial properties and are subjet to higher interest rates and mortgage requirements. It is important to contact local banks as well as mortgage brokers to disuss the over all benefits and drawbacks of choosing a fixed loan vs. an ARM (Adjustable Rate Mortgage) as well as determining the appropriate amount of downpayment.
TURNOVER EXPENSES
Tenant turn over cost can be considerably more than expected. This includes advertising for a new tenant, cleaning, repainting, replacing carpet, etc. If you expect to have high tenant turnover, like next to a college campus, anticipate this to be a significant cost.
INSURANCE COST
Investment properties are typically insured at a higher rate than owner occupied, single family homes. It is advised to get an insurance quote on the property prior to purchase. Liability insurance is also another costly consideration.
MAINTENANCE
Undoubtly, the most difficult number to estimate, maintenance costs depends on the property and how handy you are. It is difficult to give a precise number but there are factors to take into account.
TAXES
In cases were substantial improvements were done to a home or the property may have been historically under assessed, taxes can raise considerably within a year after purchase. While there are no guarantees, the safest approach is to research the current tax rate and the purchase price to determine your future taxes.
VACANCY RATES
People typically forget to take into account the fact that thier property may not be rented all 12 month's of the year. Even when looking to invest in a desirable rental area, the rule of thumb is to factor in a 10% vacancy rate.
Property Type - Different types of properties must be evaluated differently. Brick is relatively worry free avoiding exterior painting expenses and issues of wood rot. Decks require considerable maintenance; Wood floors are easier to clean and will not have to be replaced when you change tenants.
Property Size - In the caes of maintenance costs, smaller is better. The reality is, the less square feet you have to maintain, the less it will cost you.
Property Location - Consider how far you live or work from the property. Over the course of a year, transportation cost can add up.
UTILITY COSTS
Check for owner expenses vs. tenant expenses. Be sure to include utilities and landscaping services. In addition, there may be owner expenses like parking lot lights and rubbish removal and municipality services costs like septic tank expenses.
PROPERTY MANAGEMENT
When considering a company to manage your property, definitely get their rates and accessibility. When choosing, consider Red Roof property management services .
