9 Sneaky Expenses of Owning a Rental Property
Owning an investment property can be a great way to create some additional monthly income and create equity in an investment long term, but something you don’t want to forget are some of the obvious and not so obvious costs of dealing with tenants and the problems that can arise from normal wear and tear on a rental home. This article points out some common expenses of owning a rental property you would want to consider when estimating your future cash flow.
- Seasonal Maintenance: No matter where the property is located, there will probably be something you need to do for seasonal maintenance at least a few times a year. Lawn care, gutter cleaning, snow & leaf removal, and maybe even tree pruning are things you will need to budget for. These budgets can run from $100 to $300 a month depending on your situation and the amount of required maintenance.
- Appliance Maintenance: Big ticket items, such as washers, dryers, dishwashers, HVAC systems, stoves, and refrigerators will need to be replaced on occasion. Landlords with lots of experience will tell you to keep these items maintained regularly so that you won’t need to do the big repairs and replacements quite as often. Regular maintenance usually costs a lot less than replacement, but either way, you will want to budget some reserve for when something needs repair or a full replacement.
- Pest Control: Preventative maintenance includes spraying around the perimeter of the home to keep pests out. If an infestation does occur, it will need to be remedied immediately to keep your tenants safe and healthy and neither of these is cheap.
- Cleaning Costs: Cleaning costs can ramp up quickly after a particularly messy tenant’s departure. In order to keep cleaning costs low, you want to do periodic cleaning checks to ensure the property is being kept in reasonable condition.
- Property Damage: Property Damage is more than just being messy or inconsiderate. Replacing a carpet, repainting or even replacing holes in the wall is not something you want to have to do frequently, having regular cleaning checks and inspections can possibly help you avoid some of those expenses. While damage to the actual property can be accidental or intentional – and while much of the repairs should come out of a security deposit – this is another expense to consider.
- Flooring: Depending on the type of flooring you purchase for the property – you may have to replace it or repair and clean it every time a tenant turns over. Carpet can be cleaned to keep it maintained, but many other types of flooring will need to be resurfaced or replaced altogether. We recommend sticking to a flooring type you know will last you more than one tenant, and is easy to maintain, such as wood, tile or concrete.
- Paint: A great way to refresh your rental before a new tenant arrives is to paint it. The walls may be scuffed by furniture coming in and out or have holes from nails. Most tenants will expect the property to be painted before they move in.
- Taxes and Insurance: These are obvious ones that most landlords are used to from having to pay them on their primary homes. However, they tend to go up each year and can jump up considerably depending on property appreciation and zoning changes that can be unexpected.
- Homeowners Association Fees or Condo Association Fees: Another typical fee if the home you are planning on renting falls into a neighborhood or area where there are amenities or management that helps manage the area their property is located. These also have a tendency to go up over time and in some cases can levy additional fees and expenses for various things including where tenants are not keeping the property in the manner agreed to by the HOA rules or breaking other rules like noise or traffic rules. Since as the landlord you are the legal owner you would – in most cases – be legally responsible for any of those fines or fees.
Rental properties can become amazing investments over time, but before you go into buying up property make sure you know ALL the potential expenses that could come up over the life of the property.
In talking with Dana Anderson, a Philadelphia Property Management expert, he suggests to plan or budget spending about 2-3% of the purchase price of their property on yearly management, maintenance, and reserve allowance expenses.