Are you ready to step into the world of investment by purchasing your first property? While some monthly expenses are easy to determine, unexpected costs of owning a rental property can happen at any time. As a landlord, it is your responsibility to settle any charges to ensure the upkeep of your property.
Explore the seven hidden rental property costs that can affect your finances below and note the basic rental property expenses you must cover.
The basic rental property costs are the expenses you must pay to operate the property. Some fees will have fixed amounts, while others can vary. Create a rough estimate of your costs to help you budget. Some of the basic monthly expenses include:
Researching the costs when purchasing a rental property will help you know what to expect and set up a budget that will help you cover your expenses. To ensure you are prepared to take on this venture, here are seven unexpected costs of owning a rental property:
You might think your tenants need to pay taxes since they rent the property from you. However, as the landlord, you must pay property taxes. An assessor determines the amount you must pay based on the location and the house's market value.
Property tax on your rental property can also be higher than your home residence. If you do not have any tenants or have vacant rooms, you are still expected to pay property taxes.
Maintaining your property is vital to a successful business and happy tenants. Repairs and maintenance include minor fixes to major repairs and updates. It can consist of repairing a leaking roof or fixing smoke detectors to unclogging a toilet or fixing the noise your tenants hear coming from the bathroom pipes.
Neglecting maintenance can put tenants' safety at risk, so you must set enough money aside to make any repairs inside and around your property.
Legal fees are another unexpected cost of owning a property. Since you deal with lease agreements and property taxes, hiring a lawyer is in your best interest. They can offer legal advice and help you set up arrangements.
Lawyers can also help you deal with difficult tenants who break their lease agreements or refuse to pay rent. They can inform you of your rights as a landlord to avoid any disputes.
Tenants could come and go each month. And when that happens, there may be months when you have vacant rooms in your rental property. You can't make any income from an empty space. It means that where your tenant paid utilities and expenses, you are required to cover the cost.
The amount of tenants you have is not included when calculating your property taxes. So even if half your rooms are rented, you still need to pay your total amount in taxes.
Dealing with property damage can also become an unexpected expense. While a security deposit minimizes the risk of damages, your property is still at risk of being vandalized or not cared for. It can result in costly repairs that are only sometimes covered by insurance.
Buying your first rental property is a big step — a step many first-time property owners take on alone. You might consider completing tasks on your own. But without a network of professionals by your side to offer advice, you can make costly decisions that affect your finances. Your network can give you real-life examples and sound advice to help you make informed decisions.
Your network of professionals can include the following:
There is more to the cost of buying your first rental property. After buying the property, you must pay the Homeowners and Community Associations (HOA) transfer fees or closing fees, if applicable. It includes all the costs and expenses during the sales process of the property, as well as the legal and appraisal fees.
Transfer costs can vary, so be sure to note the exact percentage you're expected to pay to ensure you have enough funds to cover all closing costs.
Expect the unexpected by preparing yourself against hidden rental property costs. This will help you secure your finances and avoid liabilities that can cost you your property. Here are a few ways to prepare against the hidden costs of buying your first property:
Make buying your first rental property a happy and stress-free experience with the expert help of American Heritage Property Management. We have over 40 years of experience helping homeowners and rental property buyers manage their ventures successfully.
We have a team of insurance producers, real estate agents and representatives that can help you take care of unexpected rental property costs. We also screen tenants and perform maintenance to ensure the upkeep of your property.
Contact us today for a free quote, or complete our online contact form. We will get in touch with you shortly.