Ten Truths in Buying Real Estate for Investment

It’s exciting to imagine owning a rental property whether
its in a vacation or resort area or in a college town or just a regular
neighborhood. 

You may be considering buying a property, hoping that it
will make you rich—and many people agree that investing in real estate is a
good way to build wealth.  But it doesn’t
happen overnight. There
are potential costs to watch out for, costs that might keep your property from
generating income or could even put you into the red. 

Andrew Carnegie says that “Ninety
percent of all millionaires become so through owning real estate."

 Sounds great, right?!  So how to get started?  We published a video not too long ago with
tips for buying a vacation rental property. 
If you haven’t already seen that one, please check it out on our Saltwater
Shores Team YouTube channel.

 But today, I’d like to talk
about ten costs to watch out for so you can decide for yourself if the property
you are considering buying will generate a positive cash flow.

#10.  Mortgage -- A mortgage is a type of
loan used to purchase or maintain a home, land, or other types of real
estate.  Your monthly mortgage amount needs to be included in your annual budget.  A
good idea is to put together a spreadsheet of costs and include the monthly
mortgage amount as well as the total annually so you can calculate the cost for
a year.

Even
if you have cash to purchase the property you may decide to get a loan for
purchasing anyway in order to leverage your money.  Many real estate investors choose to do this
when the interest rates are low or at least low enough that it makes sense.

#9. Utilities – including electricity, gas, water, internet, cable, trash pickup, sewer.  You can often find out the history of the costs of the utilities for a specific property by contacting the utility companies in that city or at least they can give you an average that will help you figure out the amount for your budget.

#8. Insurance – homeowners, windstorm, flood.  Not all of these types of insurance may be
required, it will depend on the location of the property. Your Realtor® can
help you check to see if a particular property is in a flood zone.  If you are purchasing with a mortgage, the
lender will most likely require that your insurance be included with your loan
payment and held in escrow.

#7. Property Taxes – Property taxes can have a big impact
on your budget and are again, like insurance, something your lender may require
you to include with your mortgage payment. 
Your lender will then pay your tax bill annually out of your escrow
account.

#6. Lawn Maintenance & Pest Control – Depending on the
type of property you are purchasing, you may be required to do this
monthly.  If you are purchasing a
vacation home or condominium for short term rental, the property owners
association may cover this, or it may be something you will be billed for
separately. 

Or if you are purchasing a home that you are self-managing,
these are services you may set up yourself or possibly require the tenant to do.

#5. Repairs – it is a good idea to budget or set aside a
monthly amount to take care of any repairs or replacement of items including
appliances, hot water heater, HVAC, etc., that could malfunction. 

#4. Furnishings – Many of the short-term rental properties
are sold fully furnished, however at some point furniture will need to be
replaced due to wear and tear.  Or
dishes/coffee pots/and other misc. items may need to be replaced due to
breakage.  Like budgeting for repairs, it
is a good idea to set aside a reserve for potential replacement of furnishings.

#3. Permits & Taxes – Many short-term rental properties
will be required to have a permit that must be renewed each year. In Port
Aransas a short-term rental permit is required of all rentals of 30 days or
less and must be registered with the City of Port Aransas. 

You must also register with the finance department for your
Hotel / Motel Tax.  If you are
self-managing your property, this is something you will need to pay.  However, many property management companies
take care of this for you.  The Hotel /
Motel taxes can be charged to the renter then paid to the city.  You need to check the city regulations for
the area for which you plan to purchase, or your Realtor® should be able to do
this for you.

#2. Management Fees – Most management companies in the Port
Aransas area include the cost of advertising on websites such as VRBO or Air BnB.  Each management company charges a different
amount so you may want to interview several companies with a good reputation in
your location. The management company pays the housekeepers out of the
income.  This is typically a cost that is
passed through to the renter and not necessarily something that needs to go in
your budget.  However, deep cleans are
required at least once a year and this could be an additional cost.

Some condos have a mandatory management company that you
must use  and some keep a higher percent
of the income collected.  My tip –
research, research, research!

#1. HOA Dues – Property Owners Association and Condo Owners Association Dues.  This is at the top of

my list because there can be high fees associated with certain properties.  High-rise condotel properties often have
higher dues than other condominium associations however the amount of income
generated may be much higher and cancel out the association dues.  Other condominiums have much more reasonable
fees but the property may not generate as much income.

Some of the Property Owner Fees include the cost of
exterior insurance and also some utilities, which can be deducted from your
budgeted allotment for expense category #9 – utilities.

 Finding out all of this information and calculating your
expense and potential income before putting a contract on a property, whether
house or condo, is definitely something I recommend. 

I know this sounds scary but there are properties out there
that WILL net a positive cash flow.  And
that doesn’t include the positive appreciation that we’ve seen over the last
several years.  While that positive
appreciation doesn’t affect your income now, it will at some point when you
decide to sell or refinance or even take a cash out refi loan.  (Many investors will leverage their assets
this way in order to buy more real estate – but that’s a topic for another day.)

To quote Robert Kiyosaki "Real estate investing,
even on a very small scale, remains a tried and true means of building an
individual's cash flow and wealth."

I want to be sure it’s understood that The Saltwater Shores
Team are NOT investment advisors.  Our
expertise is Port Aransas real estate, and if purchasing a property in Port
Aransas for either investment, vacation or second home or even full-time living
is something you are interested in, we’d be happy to help you.  Please don’t hesitate to call or comment below,
to check out our YouTube channel and hopefully soon, I’ll see you at the beach. 

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