During the past decade, a trend of renting property has been developing, with the constant inflow of people who rather rent an apartment than buy it. Entering the rental industry is a wise decision if you are already an owner or planning to buy a property suitable for renting. Owning a rental property can be an excellent source of income, and if you are already a landlord, you are certainly aware that like any other business, this one also comes with certain risks. Some unexpected costs can seriously affect your profit and give you a lot of stress. So, in the following, read all about the hidden rental property costs that can kill profit.
Here’s a list of the most common hidden rental property costs that a property owner should know:
Taxes, fees, and insurance
Taxes and other similar fees are often one of the highest expenses when it comes to the rental building. First of all, taxes are different for your primary residence and the rental asset. The property taxes that you pay for your home might include exemptions, but rental properties don’t, which means higher taxes for your rental asset. It’s a good idea to calculate the costs and your budget before you get the bill and save yourself from any surprises.
Also, rental property insurance is usually more expensive than other policies for homeowners, but these additional costs can save you from higher costs later. Better safe than sorry. There are different rental property policies, so make sure that you find out the best one depending on your property itself and the assumed level of risk.
The next hidden cost that landlords might skip is maintenance. This is essential if you want your property to hold its value, and vital if you want to attract reliable tenants. The good maintenance of the property will guarantee its integrity. This isn’t something that you do only when you prepare the place for renting.
You are responsible for maintaining even after renting, and it is often unpredictable when something has to be fixed or replaced. If you prepare your property well, it is less likely that it will happen too often. There are always things that should be fixed, and delaying or avoiding them will only make the issue bigger.
Landlords are responsible for fixing and keeping the property in good condition, outside and inside. That includes a good condition of the roof, water pipes, heating system, electrical installations, big kitchen appliances, etc. Sometimes it’s better to replace something than constantly repair it, especially old kitchen appliances like a fridge or a stove. These items are long-term investments and it’s worth spending extra money at once and being in peace for a while.
Payments to electricians or plumbers will have a noticeable impact on your wallet. Either you take care of repairs by yourself, or hire outside help, you have to spend money on it and include the costs in your profit plan.
Bad experiences with tenants
It might not look like something you should worry about too much, but choosing high-quality tenants is important as everything else about renting. Being careful when it comes to the tenants plays an important role in calculating your final profit. Your property – your rules, and you should never skip checking the background and credit histories of your future renters. It’s not necessary to say that bad tenants can increase your expenses and even drag you into expensive lawsuits.
Proper screening will also prevent expensive evictions later. The legal process of eviction is not free, it takes time and money, and you should be prepared for this unpleasant scenario because even the best landlords can occasionally end up with bad tenants.
This may look like an insignificant cost, but it’s more important than it looks. When someone comes to see the place, it has to be spotless, and this level of cleanness is difficult to achieve on your own. It’s more likely that you’ll have to hire a cleaning service to clean every corner of the place as fast as it’s possible, mostly because you have to find new tenants right after you finish with the old ones. And if they were not the most detail-oriented, the cost of thorough cleaning is unavoidable. You can’t know upfront if your property will have a high turnover, so make sure that you planned cleaning fees in your budget.
Many proprietors estimate a budget based on 100% occupancy, but in reality, a 90 or 95% rate is more likely. No matter how fast you find new tenants, there are always at least a few days (sometimes even more!) between moving-outs and moving-ins, and those gaps have to be considered as the loss of your income. So, vacancy is another of the hidden rental property costs you should minimize. Finding a tenant as quickly as it’s possible is one of the most difficult challenges for landlords.
Many factors can affect the duration of the vacancy period. For example, if you set your rent too high, the property will stay on the market longer. On the other hand, setting it too low will reduce your profit. Finding the right balance is another challenge that property owners face. And even if you have a great property, in an excellent location, offered for a reasonable price, sometimes you can find yourself in a situation without tenants for a month or two, so be prepared.
Working with the wrong advisors
To develop a successful and profitable business in the rental industry, you have to build a reliable team of people who can help you maintain the long-term business. You’ll need a good real estate agent, attorney, accountant, maintenance company, and a property management team. Choose them wisely and find people you can trust. Hiring the wrong people is the worst hidden cost of all.
There are plenty of reasons you need a property manager. A reliable property management company will help you avoid hidden costs that can ruin your income. The benefits of hiring a property management team include finding higher-quality and long-term tenants, preventing potential problems with them, avoiding legal issues, fewer vacancy periods, lower maintenance and repair costs, tax saving, and many more.
Professional condominium management companies are experts at managing properties, so hiring professionals will increase your profitability and success, and will help you avoid hidden rental property costs.