9 Monthly Expenses You Must Consider For Your Rental Properties
Investing in rental property can be a great way to build wealth, but it's important to understand all the expenses that come with owning a rental property. In this blog post, we'll take a look at some of the key expenses that real estate investors need to consider when owning an investment property.
Property Insurance: As a landlord, it's important to have insurance to protect your property from damage or loss. Property insurance will cover the cost of repairs or replacement if your property is damaged by fire, storms, or other natural disasters. Additionally, liability insurance will protect you in case a tenant or visitor is injured on your property.
Property Taxes: Property taxes are a significant expense for landlords. The amount you pay will depend on the value of your property, and they may vary depending on the location of your property and the local tax laws.
Mortgage P&I: If you have a mortgage on your investment property, you'll need to budget for the principal and interest payments. This will be a significant expense for landlords, especially in the early years of the mortgage when the majority of the payment goes towards interest.
Property Management: If you're unable to manage your property on your own, you'll need to budget for property management fees. On average, property management fees are around 10% of the monthly rent, but they can vary depending on the location and services provided.
Utilities: As a landlord, you'll be responsible for paying for some or all of the utilities in your rental property. This can include things like electricity, gas, water, trash, and sewer.
Vacancy: Even the best rental properties will experience vacancy at some point, and landlords should budget for this in their expenses. It's a good idea to budget for around 5% of the potential rental income for vacancy. This will cover the costs of marketing the property, showing it to potential tenants, and any lost rental income.
Maintenance: Regular maintenance is essential to keep your rental property in good condition and attract quality tenants. Landlords should budget for around 5% of the potential rental income for maintenance expenses. This can include things like repairs, cleaning, painting, and landscaping.
Capital expenditures: These expenses are not recurring but they are important to consider. They include expenses such as roof replacement, HVAC replacement, or major renovations. Usually we budget an additional 5% per month for this.
Marketing expenses: To attract tenants, you might need to spend money on advertising, listing on rental platforms or creating a website for your property. In a lot of cases, your property management company will do all of this for you. If that’s the case, they usually charge a leasing fee. So you would need to account for that expense instead.
It's important to keep in mind that these are just estimates, and the actual expenses will vary depending on the location, condition, and size of your property. Additionally, unexpected expenses may arise, and it's important to have a contingency fund set aside for these situations. By understanding the expenses associated with owning a rental property, investors can make more informed decisions and better manage their cash flow.
