Photo from Pixabay.com

Photo from Pixabay.com

If property investment is in your future, make sure to consider all of the costs so you have the greatest opportunity to enjoy all of the benefits ownership can bring.

 

If you’re thinking of investing in real estate, whether because you’re looking to buy a primary residence or because you’re ready to become a landlord, you’ve probably done a lot of thinking about what that means to you financially. It may mean, for instance, taking the money you’re paying in rent each month and earning long-term equity. It could, depending on your market, even mean saving money because your loan payment is less than rent. Or it could be a strategy that you believe will strengthen your portfolio and result in a better financial position as you head into retirement.

 

But what are the costs associated with homeownership outside of the purchase price or monthly payments?  The answers may not surprise you, but many property investors lose sight of them in the heat of looking for and finding that perfect home.

 

 

  1. Closing costs. Even if you are buying a primary residence or an investment property, there will be costs associated with it.  Appraisals, title work and costs associated with filing documentation are all costs associated with purchasing a home. If, like most people, you have to take out a mortgage on your home, there are also considerations as to loan origination fees, discount points and loan processing fees. You will be advised of all anticipated costs up front when you apply for your mortgage loan, and a good rule of thumb is that the more expensive the property you purchase is the more costs you will pay.
  2. Mortgage insurance. Many mortgage loan programs require the payment of mortgage insurance. This is different than homeowners insurance; mortgage insurance essentially protects your lender should you default on the loan.  Again, your lender will notify you if mortgage insurance will be a consideration on your loan, but if you can qualify for a loan without PMI, you are better off from a financial perspective.
  3. Homeowners insurance. Home insurance is a necessary cost of home ownership. If you finance your property, odds are your lender will want (or require) you to pay your insurance to them along with your monthly payment–and they will disburse it on your behalf. The good news is that you have a lot of control over the cost of your insurance; having a higher deductible, for instance, will lower the overall cost of your premium.
  4.  Repairs and improvements. Being a property owner is great…until something goes wrong. Leaking pipes, broken appliances or a failed furnace can really ruin your day and your wallet.  A couple of considerations: look closely at your homeowners policy to see what kind of flooding (if any) is covered.  Some only cover damage if it comes from the outside in–and some don’t cover water damage at all.  Likewise, look into programs available through your local utility companies, as some offer appliance replacement policies or coverage of internal lines.  And whatever you do, opt to get a home inspection from a qualified person BEFORE buying the house. It can save you thousands of dollars over the first few years of homeownership.
  5.  Taxes. They say there are no guarantees other than death and taxes, and “they” are right!  Be aware that when you buy a home, you are responsible for payment of property taxes–and they’re likely to go up over time. Unless your taxes are rolled in with your payment, make sure you have enough wiggle room in your budget to accommodate payments on a quarterly, semi-annual or annual basis.
  6.  Utilities.  Unless you’ve been renting a property for which you have to pay all utilities, odds are you’re going to be a little surprised at just how much day-to-day living costs. Water bills, garbage removal, curbside recycling, heat, electricity–the list goes on and on. If you’re on a tight budget, doing a little research beforehand to know how much you’re likely to pay each month will prepare you for what’s to come (and could even help you choose between two properties.)

If property investment is in your future, make sure to consider all of the costs so you have the greatest opportunity to enjoy all of the benefits ownership can bring.

 

 

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