Owning an investment property is a great way to build long-term wealth and generate additional monthly income. That said, being successful in the rental industry relies on a healthy profit margin. Unfortunately, typical and not so typical, expenses can chip away at those profits more than many landlords realize. So, it is essential that property owners plan, and budget, for every possible contingency. Join us below as we outline some of the most common expenses of owning a rental property that can sneak up on landlords.
Common Expenses of Owning a Rental Property
Experts debate on the amount and formula owners should use to budget for rental expenses. However, whatever estimation you choose, allowing for surprise expenditures is always advised. Let’s review the top 9 rental property expenses cutting into your profits below –
- Seasonal Maintenance
- Appliance Maintenance
- Pest Control
- Cleaning Costs
- Property Damage
- Taxes and Insurance
- HOA or Condo Association Fees
Maintenance is an inevitable part of being a rental property owner. No matter where the rental is located, every owner will need to do seasonal maintenance at least a few times a year. Typically, this involves items such as the following –
- Lawn Care and Pruning
- Gutter Cleaning
- HVAC Service and Maintenance
- Pest Control
- Testing Emergency Alarm Equipment
- Service the Water Heater
- Routine Inspections
A healthy maintenance budget allows for $100 to $300 in monthly maintenance. However, this will vary depending on the size, condition, and age of the property.
They say an ounce of prevention is worth a pound of cure, which is true with big-ticket home appliances. Items like washer/dryers, refrigerators, stoves, and even the water heater will eventually break down. When that occurs, unexpected costs can hit unprepared owners hard.
So, along with budgeting for these costs, preventative maintenance is key. After all, regular maintenance usually costs a lot less than replacement.
Surprisingly, many landlords overlook regular pest control as a preventative measure. Preventive pest control involves strategically spraying around the perimeter of the home to keep pests out. That said, many pest control companies offer regular service contracts to handle routine spraying.
The added benefit here is their expertise in inspecting the unit can identify potential issues before they become an infestation. If an infestation occurs, it will need to be remedied immediately to keep your tenants safe, which is not cheap.
Turnover costs when a tenant vacates can get quite expensive. One of the biggest expenses would be cleaning, especially if the tenant did not keep up with proper care of the unit. Therefore, periodic inspections are a great way to monitor the condition of your property. However, intruding on your tenants with frequent inspections can do more harm than good. So, stick to one inspection every six months and try to plan it around scheduled preventative maintenance. That way, everything you need is accomplished with as little disruption to the tenant as possible.
When tenants damage your rental beyond typical wear and tear, landlords can deduct from the security deposit to cover expenses. However, property damage goes beyond being messy or inconsiderate. While proper screening and charging the right deposit will hopefully avoid tenant damage, it can happen. So, owners must prepare for potentially having to replace the carpeting, repair holes, or repaint as needed.
Depending on the type of flooring in the property – landlords may need to replace, repair, or clean it every time a tenant vacates. Carpet retains odors and stains easily. Therefore, a deep clean is almost a guaranteed necessary expense at turnover. Furthermore, carpet deteriorates faster than other flooring options and will require more frequent replacement.
Cleaning carpet is common in rentals, but other types of flooring may need to be resurfaced or replaced altogether once damaged. So, we recommend using a durable flooring type that will last through more than one tenant, such as wood, tile, or concrete.
Although not required, painting a rental property is a great way to refresh the unit before a new tenant arrives. After all, scuffed, stained, or damaged walls do not make a good first impression. That said, painting is expensive, and landlords must plan for this added expense to keep their rental looking great.
Taxes and Insurance
Most property owners are familiar with paying taxes, but adding more properties to your existing tax bill is a consideration. Depending on where your property is located, tax rates can increase at different intervals, along with varying appreciation rates and zoning concerns. Therefore, careful research into local historical tax rates is important when selecting an area to invest in.
HOA or Condo Association Fees
Another typical fee when the rental is in a neighborhood or area with amenities is HOA or condo fees. Home Owner’s Associations have their own set of rules, regulations, and fees that landlords and their tenants must adhere to. While some amenities are generally provided for the fee, these fees can go up over time, and opting out is not an option. Also, as the legal owner, you would likely be responsible for any fines or fees incurred due to the tenant breaking HOA rules.
Why Hiring a Property Manager Can Save You Money?
Yes, hiring a professional management firm will add to your monthly expenses. That said, the benefits you get from this calculated investment are many. Successful investors know that by turning to professionals, owners can maximize their property’s potential. Continue reading below for some of the top reasons to hire a local property manager for your rental.
- Lower Maintenance Costs
- Minimized Vacancy Rates
- Thoroughly Screened Tenants
- Protection from Legal Vulnerabilities
- Efficient Accounting and Reporting
- Peace of Mind
Lower Maintenance Costs
Professional property managers handle all of the maintenance scheduling and tenant coordination for you. Also, a reputable company will have trusted vendor relationships that offer owners the opportunity for faster and more cost-effective maintenance. Plus, by identifying maintenance issues early on, owners can avoid more costly and devastating repairs. Also, property managers can offer their expertise in recommending possible upgrades to maximize profit potential.
Minimized Vacancy Rates
Every day a rental property sits vacant, it costs you money. So, effective and efficient turnover and marketing are critical to your success. Professional managers are well-versed in the local market. They can ensure your listing gets noticed through the right rental rate, quality photos, dynamic descriptions, and the use of targeted marketing sites.
In addition to a great rental ad, responsiveness to inquiries is essential. Therefore, a management firm will have the staff on hand to quickly respond to calls, set up showings, and screen applications to find you the best tenant.
Thoroughly Screened Tenants
Applicant screening is a landlord’s best defense against problem tenants who will go without paying or damage your rental. However, tenant screening is a process that many landlords do not take full advantage of. Typically, a property management company will screen applicants based on the following criteria –
- Income Verification
- Rental History
- Criminal Background
- Landlord References
In addition to a thorough and efficient screening process, professional managers can ensure Fair Housing Law compliance. This helps protect owners from costly discrimination claims.
Protection from Legal Vulnerabilities
The wrong tenant can cause a whole host of legal and financial issues for rental owners. That said, an experienced property management firm has seen it all and can spot these issues early. The key here is prevention through a thorough knowledge of applicable landlord-tenant law. Plus, when problems arise, their team can guide owners through the steps to a peaceful resolution. Even if a professional manager avoids just one potential lawsuit, the savings can more than cover the cost to employ them.
Efficient Accounting and Reporting
Tax time is a hectic and confusing process for landlords. Accounting records must be both accurate and complete. That said, proper accounting goes beyond tax time and includes efficient rent collection, fee tracking, and invoice processing. By having property management in place, they provide a buffer between owners and tenants to handle prompt rent collection and late fees. Thus, avoiding excuses and the potential for tenants to talk their way out of things. Then, your manager can provide concise records at year’s end to take directly to your tax professional.
Peace of Mind
As a rental owner, peace of mind can sometimes feel out of reach – but not with professional management on your side. How much better would your ownership experience be without the worry of rent collection, maintenance, tenant issues, accounting, and every other time-consuming task?
More free time and less stress are exactly what Philadelphia property management professionals like Bay Property Management Group offer. Our team stands ready to handle all day-to-day operations of your rental business while protecting owners’ interests and profit potential at every turn. If you would like more information on how full-service property management can benefit you, give us a call today.