Is A Director Of Development Supposed To Handle Finance Functions Is Owning Rental Property, For You?

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Is Owning Rental Property, For You?

For some people, owning, and operating, leasing, real estate properties, is a great idea, while for others, it might not be! The differences apply, not only, to specific properties, but, also, to each individual’s personality, attitude, and personal strengths and weaknesses. Some of the factors include, of course, finances, including the reserves required, needed, to purchase the property, starting with the down payment, closing costs, reserves for repairs, upgrades, renovations, and contingencies. In addition, some individuals are better suited, for, to own a rental property, than others, due to some, unwillingness, pressure, and tension, involved, in this type of commitment. With this in mind, this article will attempt to consider, review, and briefly discuss, some of the main factors and considerations, which should be explored thoroughly, in depth, before taking leap.

1. Personal finance: Do you have the necessary funds, and are you qualified, for any financing, that may be required? Obtaining a mortgage on property not occupied by the owner, is very different from the process, regarding, one for private homes. In most cases a larger down payment is required (often 25% – down payment, not 20%). Also, the requirements are different, because not only, you have to clearly show, the same thing, you do, for a personal loan, you also have to show, the property is feasible, from a financial standpoint, and the lease, will handle the cash flow. It is important to have some backups, including: a) repairs; b) renovation; c) improvement; unexpected events, etc.

2. Property financial issues: I believe in the 6%–rule, which means, net return, it has to be 6%. For example, one factor is cash flow, while another factor is overall rate of return, or return on investment/ROI. Therefore, if you bought a $500,000 property, put down $125,000, and had a $375,000 mortgage loan, and the rate was 5%, your principal and interest, on a 30-year fixed-rate vehicle, would be roughly $2,000 per month. . If real estate taxes, and other escrow items, including insurance, etc., are for example, $12,000 per year, or $1,000 per month, your total expenses, each month, will be, approximately, $3,000. , is another $12,000 per year ($1,000/month), you should use this figure of $4,000 per month, for your initial calculation. Also, base your income, by having each unit, vacant/empty, 2 months per year, to proceed conservatively. This means, you must collect rent – roll, total, from all units, a minimum of $4250 per month. In addition, you must make sure that your net income should be around $32,000 per year.

3. Handle maintenance issues: Are you comfortable with this challenge and responsibility?

4. Dealing with tenants: Are you ready, willing and able, to deal with tenants, and collect rent, enforce rent, meet tenant needs, and personality issues, get involved?

5. Opportunity cost: How does owning this property (remember to factor in appreciation, depreciation – benefits, and net income, compare to how, you might do it, with other investment vehicles?

Is owning a rental property right for you? Weigh the advantages and disadvantages, and proceed wisely.

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