Buying Investment Property?
Buying Investment Property? Run the RIGHT Numbers!
A lot of people talk about running the numbers before they buy an investment property. But how do they know if the numbers are right?
Remember to look at the following carefully:
RENTAL INCOME: If you are investing in a Condo you should look at average rentals for that size unit in the same complex. This should give you a more accruate estimate of what the rental income could be.
MORTGAGE INTEREST: Talk to your Loan Officer so you will know the details of your loan options. You will need to know the current rates before running the numbers.
TAXES: If you are changing the status of the current use on the property then the taxes may change from the amount the previous owner was paying.
INSURANCE COST: Check with your insurance agent regarding the cost and work this number in your calculations. The structure insurance may be included in the Condo Association Fees but it is important to verify that it is not paid by a separate assessment. And, you will need to consider liability insurance and contents insurance.
MAINTENANCE COST: Condo Association Fees generally include maintenance of the exterior but you need to factor in cost to maintain the interior. If the interior and furnishings start to look old then the rental numbers will probably go down.
UTILITY COST: Be sure to check on what utilities are included in the Condo Association Fees. They usually include water, basic cable, sewer, garbage, and pest service but typically not telephone and power.
RENTAL MANAGEMENT COST: Rental companies typically earn a percentage of the amount of rentals. Run the numbers because just because a Rental Company charges less for a property they may not have the ability to keep the unit occupied as much as other companies. Typically it is best to stay with a company that has a presence in the complex. That way it enables you to look at the rental histories of the unit they manage.
CONDO ASSOCIATION FEES: We mentioned earlier the importance of verifying what is included in their fees (i.e. utilities and insurance). Also make the purchase contingent upon the review and approval of the financial statment of the Condo Association. You want to verify the amount the Association has in reserves. A large reserve amount can prevent Assessments for major common area repairs.
SUMMING IT UP
Most properties will have either a zero cash flow or even a negative amount. This does not necessarily mean you should not purchase the property. You should consult with your accountant or tax attorney about the tax benefits of owning rental properties. If you plan to "hold" the property then you should see a positive appreciation over the time you own it.
This information is provided as general guidelines for consideration.
