Are you interested in buying investment property in Fort Myers or the surrounding areas? Before you agree to purchase, take an inventory of all the expenses you are likely to encounter. In our latest post, we will explore some of the costs you can expect when buying an investment property in Fort Myers.
Buying an investment property in Fort Myers is a great way to increase your income. However, it is important to be prepared for your purchase by understanding all associated costs. Below we cover a few of the different types of expenses with a general idea of what you can expect to pay.
Down Payment
Investment properties typically do not qualify for FHA loans unless you’re purchasing an owner-occupied property with 1-4 units. If you’re not intending to reside in the property yourself, you’ll likely need to opt for a conventional loan, which typically necessitates a down payment of around 20%. The larger the down payment you can afford, the less interest you’ll have to pay over the long term. If you can pay in cash, even better. Doing so will eliminate interest expenses and may make you a more favorable option compared to buyers relying on financing. Cash payments facilitate a swift closing and decrease the likelihood of the sale falling through due to a low appraisal.
Closing Costs
Typically, closing costs will run you about 2-5% of the final sale price. Closing costs will include things like title search, title insurance, transfer fees, legal costs, and administrative fees. Buyers aren’t always prepared for these additional costs, so make sure you have budgeted ahead of time. You can also negotiate with the seller who will pay what, possibly arranging for them to cover the costs of closing completely on their own.
Property Management
You might be able to manage one or two properties independently if you’re experienced and live nearby. However, once you acquire multiple properties or properties located outside your area, it’s probably time to enlist the services of a property manager to assist with various tasks. Your property manager can coordinate repairs, address tenant concerns, and oversee rent collection. In exchange for their services, you can anticipate paying approximately 10% of the rent collected each month. Nonetheless, a competent property management company can prove invaluable and well worth the investment.
Taxes
Depending on where you live, property taxes can become a big factor when it comes to calculating your profits. Make sure you know the tax history of the property and any local changes that will affect the amounts you are paying in the coming years. You can look up the tax history on the property appraisers site and even sites like Zillow. Use a property tax estimator to find out what you might be in for in the upcoming year. If your margins are slim and you are stuck with a property tax bill costing thousands of dollars, the property may not be the right one for you. Don’t get hit at the end of the year with a high tax bill simply because you failed to research ahead of time.
Insurance
The insurance coverage you maintain for investment property will differ from your standard homeowner’s insurance policy. It’s advisable to carry $500,000 to $1,000,000 in liability coverage. Expect the policy to be pricier than what you pay for your primary residence. It’s crucial to ensure you have landlord protection in the event of a lawsuit filed by a tenant or another party regarding the property. When calculating the expenses for the property, remember to factor in your insurance costs.
Maintenance & Repairs
Maintenance and repairs should never be overlooked when considering the true costs of your investment property. A good rule of thumb is to budget 1% of the properties value for the minor repairs needed each year. You’ll also want to set up an emergency fund for the larger repairs that will be needed over time. You’ll want to have the money available if something major breaks or for when you require a new roof, etc.
Tenant Screening
While this might be an area where you feel you can save a few bucks using your good ol’ intuition, now is not the time. It is extremely important to conduct full background checks on every person applying to live in your house. Even if you already know them, and even if they are a friend or family member. Many landlords find themselves stuck with bad tenants all because they didn’t spend the time to fully check them out. Many hassles and expenses can be avoided with a fast and thorough background check.