FHA Mortgage, Interest Rates and Marketing

Owning a rental is similar to owning a pet. While you don’t need to house train your rental property, there are several hidden costs with owning a pet and with owning real estate. Here are 6 main fees associated with owning real estate: mortgage payments, property management fees, homeowner’s association dues, property insurance, property taxes and repairs.

Mortgage payments are the least hidden of the 6 fees, because most people count on these. Payment amount varies depending which type of loan the borrower chooses. Be wary of adjustable rate loans; 30-year fixed loans are great for investors planning to hold their property for a long period of time.

However, not everyone plans on property management fees. Of course, only those investors who choose to hire a property manager must factor in such fees. I always recommend working with a property manager because their services are indispensable–they assist with everything from finding a reliable renter to managing the property. Such professionals charges by the percentage, usually somewhere around 10%, of the annual renting price.

Homeowner’s association dues are also fees that some will not have to consider because not every property is in a neighborhoods with such dues. Those that do live in areas with a homeowner’s association may experience high dues or relatively low dues. The payment amount should reflect the services rendered. For example, a neighborhood with high dues might have their lawn care, cable, insurance, etc. covered. Neighborhoods with lower homeowner’s association dues may have nothing covered other than the upkeep of the entrance sign. It’s a trade off of sorts: higher prices also equal less work for the investor.

Property insurance covers your property in the case of a natural disaster or fire. It’s important to know what is covered by your insurance–understand both the deductibles (they may vary depending on the claim) and your liability coverage. By thoroughly understand what will be covered when filing a claim beforehand, you won’t have any unpleasant surprises later.

Real estate taxes are simply property taxes that increase as the value of your property increases. While the value of your property increases over time, so does the number of necessary repairs. It’s wise to count on a certain amount of repair, small and large, if you’re planning to hold a property for a relatively long amount of time.

Like a parent evaluating the extra costs associated with owning a pet, it’s always prudent to consider hidden fees when assessing your real estate investment.

I seem to attract the real estate inquisitive. Perhaps the most common question I am asked is this: Is real estate investing a smart idea?

“It depends,” I say, as a million questions stream into my mind. Where are you looking to invest? What property type? Fixer upper? Long hold or short? Is the seller motivated? What’s your credit like? Can you put 10 % down? It just depends. Many of us, myself included at one time, tend to group real estate into this big, singular blob–but real estate is so multi-faceted.

Here’s one example. People tend to talk about rehab investing as one category; shoot, I even do this from time to time. However, cosmetic rehabs and gut rehabs are entirely different. One is a major project, the other relatively minor. (Sometimes cosmetic rehabs turn out to be gut rehabs–but I won’t get into that right now. A little off topic). I use this example because I like rehabs; potential for high return is there.

It’s certainly not like it was during the boom. All sorts of people were making money rehabbing without much research or strategy. The market’s not like that now; it’s more balanced. Now it takes research to make money; you need to know what you’re doing and why. But the potential for high return is still there and many financing programs are emerging to encourage rehab investing. For example, I found one site www.spec-loan.com, with a great hard money rehab loan. (Go to the main site and click on new hard money loans on top).

“There’s still opportunities out there,” I’ll tell the real estate inquisitive. “It’s about location. About the seller. How motivated are they? It’s about you’re entrance and exit strategies. You should know both before buying. It’s about so many things. But there’s still people making money out there. Every type of market caters to someone.”