Costs to consider before buying an investment property

young couple entering front door of vacation rental property

In order for your property investment to be an enjoyable, rewarding, and lucrative experience, it’s vital that you’re fully aware of what’s involved and required to be successful. This article is not meant to deter you; it's meant to honestly depict all the responsibilities of property ownership.

Let’s look at the requirements of financing an investment property.

Once you decide to invest in real estate, you’re entering the world of commercial loans. (Any property designed for five or more tenants is considered commercial.) With a commercial loan, you’ll be required to put down a much larger down payment—typically 20 - 25%—compared with an average 10% for a residential loan.

There are also many more associated expenses with owning investment property, including:

  • Cleaning services
  • Landscaping
  • Insurance
  • Utilities
  • Management company
  • Professional fees
  • Repairs and maintenance
  • Advertising
  • And many more!

While a fully rented house is ideal, there’s also the very real possibility that one or more units may go unrented for a period of time. Make sure you’re able to cover the lost income while you find a new tenant.

And then there’s the "Hiccup Factor." This simply means any emergency that may come up unexpectedly, and they certainly will at one time or another. What if the roof needs major repairs? The HVAC system goes out and needs to be completely replaced? Having the funds to cover any of these hiccups may be the deciding factor in whether or not investing in commercial real estate is right for you.

The last thing we want is for you to close the loan and then run into financial problems!  You must set aside additional money for the hiccups that inevitably happen. We are here to give you help and advice before you part with your investment money, so drop me a line at ppurcell@hfcu.org and we'll do our best to answer your questions about the realities of financing an investment property.

If you're considering investment property ownership and want to learn more about what's involved in financing an investment property, download our free eBook today.

Link to download Hanscom FCU investment property guide

 

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Phil Purcell

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