Investing in rental property in Kirkland is an easy way to make a lot of money, especially if you have the capital for a large investment. However, banks typically require you to have substantial reserves before they will even consider giving you a loan to buy property, especially in Kirkland where values are high and property space is at a premium. Because the standard is usually six months of reserves for a mortgage, you can easily calculate how much you need to save before you can take out a loan and invest in your property.

Calculating Reserves

The basic rule for calculating reserves is deciding how much money you need to financially make it and continue paying your loan until your apartment units begin to pay off. For most banks, the requirement is a minimum of 6 months of mortgage payments on all of the properties you are taking a loan out on. Some will also require that you can cover all of your mortgages and financial responsibilities for this period. You should ensure the latter in either case. You also have to calculate in your taxes, insurance and maintenance costs in order to get the proper amount. For the most part, this is basic math, which you can expedite with either the help of a calculator and a spreadsheet or a professional accountant who will make sure that everything is correct. For example, if you’re purchasing something where the mortgage payments are $1,800 per month, you have to add on tax, calculate the cost of insurance, calculate the cost of repairs and monthly maintenance and then add on any other costs, such as other investments, the mortgage on your home, and other information.

Is a Basic Reserve Enough?

One important thing to consider is whether your basic reserve is going to be enough. Usually, it depends on whether you can make your rental units profitable enough to pay your mortgages in six months.  If you can fill your units and don’t have a lot of emergencies, then this is probably the case, but if you have vacancies and other issues that may affect your cash flow, you might not be able to make your investment profitable in six months. If this is the case, you may want to consider creating a reserve for longer than six months to give yourself more time to make the investment profitable. If you overshoot and end up being more profitable than expected, you can only benefit.

One way to ensure that your rental property becomes as profitable as possible is to hire a Kirkland property management company to help you fill your units as quickly as possible, handle maintenance and ensure that you make as much money as possible as quickly as possible. While property management companies do charge a percentage of the rent, they don’t charge you until your units are full, which means that you won’t pay anything until you are earning money, saving you the initial costs of marketing and screening tenants. 

Posted by: eirikolsen on March 10, 2015
Posted in: General