Expenses that Landlords should take into accountFebruary 17, 2018
Landlords should be aware of the costs associated with owning and managing a rental property. Treat a rental property like a business.
” Bingo if the rental income covers the mortgage ”
Those new to the real estate rentals market often oversimplify the math that goes into evaluating an investment. The truth is there are lots of costs beyond the mortgage to consider—ideally before closing on a property.
When evaluating whether a rental property is a good investment, remember that many properties will have a short period of vacancy each year. No tenant means no income. Look up the vacancy rates in the neighborhood, since they can vary from place to place, but you can generally expect a 5 to 10 percent vacancy rate per year. Additionally, sometimes tenants won’t pay their rent. It’s an unfortunate reality, but one that should be figured into potential costs.
Repairs and Maintenance
Overall, it’s important to allocate about 1 percent of the property’s value each year for repairs and maintenance, which includes both routine and major events. When something goes seriously wrong—the roof leaks, the HVAC system goes out, mold starts growing in the basement—landlords should have cash reserves on hand. These costs are referred to as “capital expenditures,” and it’s key to budget for them. A good rule of thumb is to keep three months’ rent on hand. If the rent is $1500 per month, keep $4500 for capital expenditures (this can be factored into the 1 percent). While small property owners can often take out a home equity line of credit, that should be a last resort.
Landlords should allocate about 1 percent of the property’s value each year for repairs and maintenance. Some common issue include:
- Deep Cleaning before delivery the property to a new tenant.
- Pest control
- Clean the carpet (we do not recommend to install or keep carpet flooring)
- Check A/C and maintenance*
- Check appliances *
- Check roof conditions or any leak
- Check for mold
- Check for electric issues
- Check for plumbing issues
*Tip : For peace of mind in managing unexpected A/C, appliance and minor electrical repair and replacement costs Home Service Plans Start at Just $29 a Month Service America
Legal and Accounting Fees
Every small property owner should hire a lawyer and an accountant. Legal issues and real estate taxes are far too challenging for most people to handle on their own. Bookkeeping software is also a smart investment
While earning money from a rental property can be a sound financial strategy, always make sure to calculate the potential costs before diving head first into the world of small property management.
Source Info: apartment.com