Real estate investing is the type of profession that keeps you busy while still allowing you to get creative with your work ethic. Investing in real estate with little or no money is a common start for real estate investors. But how much money is actually needed to start a real estate business? We are sure you’re asking yourself: “Can I afford a rental property?”.
Mashvisor is here to provide you with the numbers. The numbers can be anything from cap rate to cash on cash return, or another measure of the anticipated return on investment. Making money in real estate can be a sticky business, so understanding if you can afford a rental property is important. Here, we give you the tricks to determine if you can afford a rental property, and how financing investment properties works.
Can I Afford a Rental Property?
There are so many questions to further ask yourself when you think “Can I afford a rental property?”. There are a number of factors that determine whether you can or cannot afford to buy a rental property, so we have compiled a small list of those factors
Factors to Consider to Answer the Question “Can I Afford a Rental Property?”
The question “Can I afford a rental property?” is a crucial one to figure out. The last thing you want to do is throw thousands of dollars into a property only to find out it will not prosper on its own.
Mashvisor can help you get a glimpse of the numbers such as cash on return on investment, cash return, cap rate, and occupancy rate. These metrics can help you be better equipped when in the real estate jungle. Mashvisor is your sharpest sword, so keep us by your side.
Related: How to Buy a Rental Property Using Mashvisor
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Other factors to consider besides Mashvisor’s analytics are as follows:
The Condition of the Rental Property Building
Real estate investing can be a losing game if you don’t play the cards you are dealt right. If you are dealt a fixer upper that needs more effort than you can realistically afford, toss it. Get the investment property inspected by a reputable professional. Think of what repairs you can do on your own, and which will require professionals.
Calculate how long any of the repairs will take; if these repairs will mean the house will be vacant for months for the renovations to be done, it may not be worth it. There is nothing worse than an empty rental property that isn’t bringing money into your pocket.
The 1% Rule
Each real estate investor has an idea of what they want to achieve financially, but many can agree that the income from the property should follow the 1% rule. Let’s say you buy an investment property for $100,000, which would need to bring in $1,000 a month.
This is simply calculated by the basic math equation of $1,000/$100,000 = 1%. This formula takes the estimated monthly rent divided by the property price. When you are questioning “can I afford a rental property?”, consider this rule. A glimpse of what to expect from the property you’re investing in changes the game.
Related: Is It OK to Break Even on a Real Estate Investment Property?
Property Taxes
Paying property taxes is one of the givens when real estate investing. High taxes are going to tear away at your profit, while low taxes will allow you to receive a much larger amount of that rental income.
Generally, you can expect to find high property taxes in metropolitan areas and lower taxes in the rural ones. Don’t forget that although you can find the perfect house in a perfect neighborhood, high property tax could make for a poor real estate investment choice.
The most successful real estate investors are able to find good investment properties with low property tax. You are hungry for cash flow, so don’t settle. “Can I afford the a rental property” might boil down to “can I afford the property tax?”.
Insurance Costs
“Can I afford a rental property” is a haunting question, and “can I afford the insurance costs” is just as evocative. The same way property taxes like a taste of your rental income, so do insurance costs. Due diligence is a must here, as you need to take a number of steps to minimize the insurance costs.
First, figure out what kind of coverage you want for the investment property. If you are just starting out, figure out what you’re going to really need instead of want. Whatever it is, figure out the coverage.
Related: Real Estate Investing 101: 7 Unexpected Costs When Buying a Home
Secondly, figure out whether the area you’re interested in has higher insurance premiums or not. This depends on your area’s vulnerability to natural disasters like floods, sinkholes, tornadoes, hurricanes, earthquakes, and the such. If this is the case, the investment property may not be worth it. Once you’ve got that down and still want the house, start comparing insurance rates.
Can I Afford a Rental Property: Where to Now?
Mashvisor can give you the numbers, and with the points we’ve just explained to you, you can answer the question: Can I afford a rental property? We understand that buying a rental property can be intimidating, especially if you are a beginner real estate investor and not sure if you can even afford it. You need to gain the personal and financial confidence.
You are capable of investing in real estate estate with little or no money, so long as you know what you’re doing with that little money. A dollar can be put back into your pocket as a good looking Benjamin Franklin if you use it right.
Mashvisor is ready to help you turn the question “can I afford a rental property?” into the statement “ I can afford this rental property.” When thinking of how to start a real estate business, get creative! You are a real estate investing mastermind, so use your skills. Even figuring out how to buy rental properties with no money is possible. Have the Einstein mind of real estate, or as we call it, a Mashvisor mind! You will be surprised how far your capabilities to make anything possible will take you.
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