An Example Of How A Company Manages Cash Flow Is Owning Rental Property, For You?

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Is Owning Rental Property, For You?

For some individuals, owning, and operating, rental, real estate property is a great idea, while for others, it may not be! This difference applies not only to specific assets, but also to each person’s personality, attitude and personal, specific strengths and weaknesses. Some factors, of course, include financial considerations, including required reserves for property purchases, down payments, closing costs, reserves for repairs, upgrades, renovations, and contingencies. In addition, some individuals are better-suited to owning a rental property than others, as some do not want the stress and tension involved in this type of commitment. Keeping this in mind, this article will attempt to briefly consider, review and discuss some of the important factors and considerations that one should explore in depth, before undertaking. the leap.

1. Personal Finance: Do you have the necessary funds, and will you qualify for any financing required? Obtaining a mortgage on non-owner-occupied property is significantly different from the process for a personal home. In most cases, a larger down payment is required (often 25% rather than 20%). Additionally, the requirements are different, because not only do you have to demonstrate the same things you do for a personal loan, you also have to demonstrate that the property is viable, from a financial standpoint, and will handle the rent. cash flow. It is important to have several reserves, including: a) repairs; b) Renewal; c) Amendments; Unexpected contingencies etc.

2. Property Finance Issues: I am a believer in the 6%-rule, which means, the net return should be 6%. For example, one factor is cash flow, while the other factor is total rate of return, or return-on-investment/ROI. So, if you buy a $500,000 property, put $125,000 down, and have a $375,000 mortgage loan, and the rate is 5%, your principal and interest, on a 30-year, fixed-rate vehicle, will be approximately $2,000 per month. Real estate taxes, and other escrow items, including insurance, etc. If, for example, $12,000 per year, or $1,000 per month, your total, out-of-pocket, per month, is approximately $3,000. If you estimate, upgrades, repairs etc. For another $12,000 per year ($1,000/month), you should use this $4,000 per month, for your preliminary calculation. Additionally, to proceed conservatively, base your income on each unit, vacant/vacant, for 2 months per year. This means, you must collect rent – roll, total, from all units, at least $4250 per month. In addition, you should ensure that your net income must generate approximately $32,000 per year.

3. Handling maintenance issues: Are you comfortable with these challenges and responsibilities?

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

5. Opportunity cost: How can you own this asset (remember the appreciation, depreciation – benefits and net income factor, compared to other investment vehicles?

Is rental property ownership right for you? Consider the pros and cons and proceed wisely.

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