I’m currently on the look out for a property to make into a rental property. I’m just running into a couple things I have questions about.
1.) I am a very mathematical formula depending human being... & so that causes me to ask how do I implement into the monthly payment of my tenant.
The house monthly mortgage $ + the 1% rule $
(If you know a formula this would be the time to tell me pleasssseeee & thank you greatly)
2.) Do I need to meet any requirements in order to make contract deals for 1-year with my tenants?
(If so, how do I go about meeting those requirements.)
3.) what % of interest does one normally need to pay a private investor?
I have someone who is interested luckily, but I don’t want to low ball them. So I just want an over all average.
4.) What’s a good way to lower closing costs?
@Carlos Cuervo I will take a stab at a couple of these:
1. I'm not 100% sure I understand what you are asking, but here is a quick way to assess financials: monthly rent - (mortgage + insurance + property taxes + utilities) = monthly income. Now, you should budget what is left to account for future repairs, capital expenditures (roof, HVAC, etc.), vacancies, property management etc. If you can account for all those things and still have a positive number then the remainder would be you cash flow. For example:
1300 (rent) - 700 (mortgage PITI) = $600
600 - 130 (10%, property manager) - 260 (20%, maint and capex) - 108 (8%, vac)= $102 cash flow
These are just hypothetical numbers and don't indicate actual numbers you should/need to use.
2. You don't have to meet specific requirements to establish a rental agreement with tenants. However, you want to make sure you are adequately prepared to screen tenants by checking background and credit history etc. as well as have a lock solid lease agreement to help protect you. I would seek an attorney's advice in helping you set up a lease agreement if you will not be using a property manager.
4. If you use financing, many closing costs are what they are. I would shop around for lenders and compare side by side the quotes they give you as some lenders add more "fluff" than others. There are some things you could potentially negotiate down or out, but most of it is mandatory. The book "Real Estate Investors Guide to Financing" is very helpful with this and provides some good information.