Owning a rental property is one of the best investment options to make money each and every month. Real estate investing through rental ownership has many benefits. Besides earning a steady cash flow every month, your property also get to grow in value in the long run. However, rental property investing is not all roses. Whether you’re a new investor or an experienced investor in rental properties, there are many hidden costs you should know. For many investors, they only consider their expected mortgage rates and the rental income they will receive. To their surprise, they get to cater for ongoing costs they never thought they will meet.Investing in rental properties is not all about buying the property, renting it out and relaxing as you earn the income.
Here are the hidden costs of owning a rental property that you should watch for.
Legal Advice and Administrative Fees
As a landlord, you should be working closely with a good attorney and good legal advice. To hire a good attorney, you obviously need money. Additionally, you will need to factor in administrative expenses required of a landlord such as interviewing your potential clients, checking their credit history and references.
Maintenance Issues on the Rental Property
Whether you’ve purchased a brand-new property or an older one, maintenance will be required for the property to be in good shape. Maintenance expenses can vary but tend to be more expensive for older homes. Fixing issues such as a leaking roof, heating system, plumbing, electrical installation and other appliances is very important. Regular maintenance of your rental property will help you keep it in a good shape.
Bad Tenants on the Rental Property
Having bad tenants on your rental property is another cost you have to face as a landlord. Not all tenants are good. Choosing good tenants for your property is a sure way to avoid bad experiences. Take your time and effort to screen your tenants thoroughly to ensure they’re the ones you wish to have on your investment property. Bad tenants are mostly the cause of higher rental expenses. However, in case you end up with bad tenants, you will have to treat them as required to avoid lawsuit. Be selective on whom you rent your property to avoid damages and increased vacancy rates.
Taxes and Insurance
These are obvious extra costs every landlord has to face. Property tax, property insurance and association fees are the common costs you will incur as a landlord. The property tax to pay will depend on your location. You should also keep in mind that the landlord’s insurance is slightly higher than the homeowner’s insurance. When choosing a rental property to invest in, carry out a thorough analysis to ascertain that your rental income will be able to cover these expenses and still leave you with a positive cash flow.
Vacancy is one of the major risks in rental property investing. Increased vacancy will make you pay your mortgage and other expenses from your pocket since you will be receiving zero rental income. This is a negative cash flow which is a nightmare in real estate investing. It is therefore imperative to have a backup plan that can contain you if you happen to have vacancy for some months.
Although you can own a rental property without involving a property manager, it doesn’t mean it’s a good idea. Managing your rental property by yourself can be a tiresome task. This is where you need a property manager to take care of your property as you handle other important issues. Professional property management companies tend to charge between 6% – 8% of the rental income.