How Much Money Do You Need To Buy Your First Rental Property

You pay an upfront option fee.

How much money do you need to buy your first rental property. This is a deposit on the property and gives you the option to buy the home. What to do before you purchase land. You need to have plenty of money. Some of the costs you ll have to account for include fees permits the cost of purchasing the land. The amount depends on the type of loan you get.

The down payment the down payment makes up most of the total costs of buying a home. You don t have to belong to the 1 percent to pull this off but for a bank to allow you to purchase a second home without plans to sell the first you can t be just getting by hoping a second house will fix your financial picture. If you end up buying the option fee is credited toward the purchase price of the home. While you will get a larger cash flow on that investment it ties up all of your cash in a single place. For example if you own a 1 million property free and clear and use the proceeds from the sale to acquire a 3 million property with a 2 million loan the 1031 exchange could help you do this.

If however you get a loan with 20 down you could potentially purchase another house or two at the same price with the remaining 80 000. If you ve decided to buy land keep in mind that it s not going to be a short term project. Your first option is to buy a house in cash for 100 000. Buying land is a major undertaking and to begin the process you ll need to figure out how much breathing room you ll have in your budget for a new house. Based on the 28 rule which requires that 1 680 payment to account for no more than 28 of your gross monthly income you d need a monthly income before taxes and other deductions of at least 6 000 or an annual gross income of at least 72 000 to qualify for that mortgage.

The fee while negotiable is typically 3 to 5 of the agreed purchase price. Other experts advise that your home cost no more than two and a half times your annual salary. It is a good idea to look for land which will be suited for growing without much bed preparation this can save you a lot of time and money in the beginning. You also need to determine how much home you can really afford. A good rule of thumb is to keep your mortgage along with your taxes and insurance between 25 and 30 percent of your income.

You cannot spend all of your money on these costs and lenders will require you have cash reserves in savings of at least 2 3 months of mortgage payments. Select a low cost home as your first investment property.