How much money do I need to buy a house for investment? Can I even afford to buy an investment property in the US housing market 2019?
Thinking of starting your own business this year by investing in real estate but feeling a bit discouraged by the price tags in the market? Unfortunately, that is the case with most people. Once they start crunching the numbers, they immediately turn the other way and end up missing out on one of the most lucrative investments in the world.
In reality, the amount of money you really need to invest in real estate is not as much as you think and you just might be able to afford an investment property this year!
So, without further ado, let’s answer the question:
How much money do I need to buy a house for investment?
#1. How Much Cash Do I Need to Buy a House for Investment?
When you’re wondering how much money do I need to buy a house, the word “cash” might scare you a little. You might look at your savings account and think “There’s no way I can afford to buy an investment property with this!” Luckily, the cash you need to buy a house for investment is not a million dollars. This should make you feel a little more at ease. So, how much of a cash investment do you actually need to have ready for investing in real estate?
Down Payment
A down payment is a portion of the property price that you must pay as a minimum cash investment. The minimum down payment is usually 20% of the price. For example, if the investment property is worth $100,000, this means you’ll have to have $20,000 ready.
A 20% down payment is typical if you are using one of the traditional investment property financing methods like a mortgage. However, it may vary if you’re going with hard money lenders or private money lenders.
Related: Can You Buy a House with No Money Down for Real Estate Investing?
Reserve Money
Reserve money is primarily kept for any rental property expenses that require periodic payments such as insurance, maintenance, professional property management fees, and taxes. So, when the time comes for these bills, you want to make sure you have the money until your investment property starts generating an income and pays for its expenses.
Mortgage lenders actually require that you have a cash reserve- typically 6 months worth- for every property you own/wish to own.
Unexpected Expenses
One thing to keep in mind when buying an investment property is that unexpected expenses can often pop up. So you need to have some money saved up for when you need to fix a faucet that broke unexpectedly or you experience a sudden vacancy, for example.
Some for You Too!
The most important thing before you buy a house for investment is that you get your finances in order. You need to save some money for yourself for at least the first six months until the investment property starts generating some positive cash flow. That is, of course, unless you are investing part-time on the side with a full-time career.
#2. Where Will I Get the Rest of the Money Needed to Buy a House for Investment?
Fortunately for you, you do not have to have the ENTIRE price of an investment property to get started in real estate. There are so many ways you could finance your project and invest as little cash as possible from your own pocket initially.
As mentioned, if you have the 20% down payment saved up, a good credit score and a low debt-to-income ratio, it is possible to finance and buy a house for investment with a conventional mortgage loan. Just keep in mind that you will have to have money to cover the closing costs and any extra loan fees. You’ll also need to fit in mortgage rates into your financing plan. Luckily, these rates are currently at historic lows, so now is actually the best time to buy a house for investment.
Related: Invest in Real Estate Now as Investment Property Mortgage Rates Are Rising
You can also check out Mashvisor’s blog where you can find all the information necessary for financing a rental business and learn more about the different investment property financing options.
#3. How Do I Make Sure the Investment Property Is Worth Every Penny?
It’s true that it doesn’t take a million dollars to invest in real estate, but you still want to make sure the investment is worth the hard-earned cash you put into it. So even though you do not need to have the entire amount to buy a house for investment, you will need to ensure that you’ll be able to repay the mortgage on time and that you’ll be making money in real estate. This will require a positive cash flow property.
So what should you do to make sure you find this type of real estate? Use an investment property calculator. This fantastic real estate technology will help you find the best real estate investments in no time. Not only that but also it takes into account your mortgage payments and enables you to make smart decisions regarding your money. The investment calculator is perfect if you are calculating profitability measures such as the cash on cash return. CoC return is one of the metrics of return on investment which tells you the rate of profit you’ll make on the money you’ve invested.
Mashvisor Can Help!
Now that you have the answer to the question “How much money do I need to buy a house for investment?”, you need to find that money-making house! And Mashvisor is the place you want to turn to if you are looking for the best real estate investments. Not only do we have the investment property calculator, but we also provide real estate investors with guides, advice, and other tools for finding profitable rental properties. So, instead of going back and forth trying to find your best options in the US housing market 2019, click here to start looking for and analyzing the best investment properties in your city and neighborhood of choice.