8 Costs To Consider When Buying A Rental Property | Bedford Hills Real Estate

Even as home prices and mortgage rates rise, there are still bargains available for borrowers looking to purchase rental properties.

 

According to the National Association of Realtors’ 2013 Investment and Vacation Home Buyers Survey, investment-home purchases accounted for 24 percent of all sales in 2012, the second highest mark since 2005.

 

“Investors have been very active in the market over the past two years, attracted mostly by discounted foreclosures that could be quickly turned into profitable rentals,” Lawrence Yun, NAR chief economist, said in a statement.

 

 

 

While rental properties are certainly appealing, offering the promise of monthly cash flow in addition to long-term appreciation, investment properties have a number of costs that are both visible and hidden, says Michael Whitbeck, real estate investor and founder of Residential Mortgage Underwriting and Processing Institute, a mortgage underwriting training firm in West Bloomfield, Mich. Even the most obvious expenses, like the monthly mortgage payment, might pack a few surprises.

 

Before you start searching for rental properties, run the numbers to understand whether investing in a rental property will be a windfall or a money pit.

 

8 rental costs to consider

 

No. 1: Mortgage requirements

 

Investment properties are considered riskier because the home is not your primary residence. Whitbeck says you should expect to pay roughly 1.5 percent more than the mortgage rates you see advertised. The down payment requirements for a fixed and adjustable 1-unit structure would be about 15 percent and 25 percent, respectively. If 2 to 4 units, those down payment requirements jump to 25 percent and 35 percent, respectively, says Whitbeck. Furthermore, if your credit score is less than 720, expect to pay even more.

 

No. 2: Property taxes

 

Depending on where you purchase, property taxes can add significantly to the property cost, says Whitbeck. Be sure to contact the municipality directly to ensure that the taxes listed on the Multiple Listing Service are accurate. It’s also a good idea to find out what services those taxes include. For example, does that include garbage removal?

 

8 Costs To Consider When Buying A Rental Property – TheStreet.