Many people don't understand the true cost of owning investment properties. Here is a guide to these costs from the best property manager in Seattle.
Keyword(s): best property manager in Seattle
When it comes to investment properties, generally as a rule of thumb, if you meet the 1% acquisition rule, it's considered a good investment. However, there are quite a few things that you need to always consider when looking to purchase an investment property. This is especially true if you're trying to invest in Seattle area!
Which is why we're here to bring up 7 lesser-known costs of owning an investment property that you may not have known about. Let's take a look!
1) What are the Upfront Costs of Securing an Investment Property?
The first and most obvious cost is the purchase price (downpayment) of the investment property itself. But in addition to that, you'll also need to factor in things like:
- The cost of a home inspection
- The cost of any necessary repairs or renovations
- Closing costs
2) What are the On-Going Costs of Owning an Investment Property?
Once you've purchased an investment property, there will be ongoing costs associated with maintaining it. These costs can include:
- Mortgage payments
- Insurance premiums
- Property taxes
Without knowing about these maintenance and ongoing costs and preparing for them financially, your investment could end quickly. Make sure you have financially prepared for these kinds of costs on a monthly bases.
3) What Is the Cost of Homeowners Insurance
What about the costs of insurance for an Investment Property? Owning a home, whether it's an investment rental or not, you'll need insurance.
Homeowners' insurance for investment properties is generally going to be more expensive than it would be for a personal residence. The reason for this is that they are typically more of a risk involved with an investment property.
When buying a home, the best way to find out how much homeowners insurance will cost you is to get quotes from different insurers. Make sure you're getting quotes from companies that specialize in insuring investment properties. Make sure to do this before you finish purchasing a home!
4) Property Management Services Fees
If you're looking to be the best property manager in Seattle, or even if you just don't have the time to manage your investment property on your own, you may need to factor in the cost of hiring a full service property management company.
Typically, management companies will charge a percentage of the monthly rent (usually around 10%) as their fee. In addition to that, they may also charge a one-time set-up fee when you first sign up for their services.
A property and Rental management company is going to be a necessary expense if you don't have time or if you plan on expanding on your investments.
5) Emergency Costs
Emergency costs can be things such as urgent repairs or re-leasing costs in case you need to evict or just lose your tenants. You should always have a buffer saved up in case of any unforeseen costs that may come up.
Generally, it can take anywhere from a week to a month to find new tenants, so it's a good idea to have at the very least the amount to cover a month without tenants. Preferably more though.
Having several thousand reserved for urgent repairs is a good idea as well. For example, if you have the central air conditioning go out, the average cost for AC replacement can run anywhere from $4,000 to $12,000 depending on what is needed.
6) Legal Advice & Miscellaneous Fees
You'll need to factor in the cost of legal fees and any miscellaneous expenses when owning an investment property. Legal fees may be expensive, but it's important that you pay for them so that you don't have any legal issues down the road!
Some miscellaneous expenses could be:
- HOA dues (if applicable)
- Pest control
- Snow removal (if you live in an area that snows)
- Yard work/landscaping
It's always best to overestimate your costs so that you're not caught off guard later on down the road!
7) How Much Does it Cost to Own an Investment Property?
For the most basic idea of finding your cost for owning an investment property, you can use the 1% rule. The 1% rule is quick and easy. Monthly rent should be at least 1% of its acquisition price.
The purchase price may be greater than or less than the purchase price. It is the purchase price plus the money required to get the property ready to rent. For example, if you were to buy an investment home at $100,000, then you would want to rent it out for a bare minimum of $1,000. Otherwise, this could be a bad investment.
However, you'll still need to think and be prepared for all of the other costs that we have already mentioned in this article.
The best way to find out how much an investment property will cost you is to talk to a professional. They can help you estimate the costs and make sure you're prepared for anything that may come up.
At Next Brick Property Management, we pride ourselves on being the best property manager in Seattle. We have years of experience in the industry and helping locals right here in Seattle. We would be more than happy to chat with you about your investments!
Investing in Property in Seattle
If you're looking to invest in property, it's important to factor in all of the associated costs. From emergency repairs to monthly management fees, there are a number of things to keep in mind when budgeting for an investment property.
By overestimating these costs, you can help ensure that you don't run into any surprises down the road. If you're not sure where to start, talking with a professional property manager is always a good idea.
If you're looking for the best property manager in Seattle, give us a call today to get help with your next home investment!