Owning rental properties can be a lucrative, but to make money in this industry, you have to buy the right properties and find the right tenants.
It would be best if you also planned for your expenses accurately.
Many landlords end up making less money than they expect because they overlook to include some critical rental property expenses.
If you want to make the most money from your rental, you need to learn about the most common types of unforeseen expenses in this industry.
Here are seven hidden costs you should recognize, as you will likely have to pay these.
1. Property Taxes
When you initially start investing in rental properties, you might have limited information on how much the property taxes will be for your properties. In some states, You might view your own home's property tax bills and assume the rental units will have the same rates.
The property taxes you pay for your house include exemptions. You cannot claim these exemptions on rental properties, though, so you will pay more for your rental property taxes.
Failing to plan for this could cut into your profits. Therefore, you may want to find out the costs for these taxes before you get the bills. When you find out the costs, you can add them to your budget and avoid surprise expenses.
2. Insurance Costs
The second cost many landlords minimize is the rental property insurance costs. Insuring rental properties is not affordable, and your rates might increase each year.
If you fail to account for the increases in property insurance costs, it might cut into your cash flow.
Also, If you ever file a claim, you might see increases in your insurance premium. It would help if you planned for higher prices each year to protect yourself.
3. Maintenance for Rental Property Costs
The next hidden cost you might forget about it is maintenance costs. Maintaining properties is vital if you want them to hold their values. Proper maintenance is also essential to attract good-quality tenants.
You will have maintenance to do when preparing rental properties and throughout the year. Creating a list of maintenance tasks to do is a great way to keep up with these tasks, and you can create a list of monthly and yearly tasks.
Rental property maintenance costs will likely cost more than you expect. Therefore, you should consider increasing your budget by at least 5% to 10% for these added expenses. If you do this, you can avoid unforeseen costs.
4. Eviction Fees
Owning rental property often places you in a position where you must evict people. Even the best landlords occasionally end up with poor-quality tenants.
You must follow the legal process of eviction if you need to get rid of a tenant, and the process is not free. You can save money if you handle it yourself, but managing it yourself requires spending time and effort on the case.
You can also hire a lawyer to handle it for you or hire a property management company to handle your evictions. In either case, you will rack up fees from the evictions, and you might not be planning to pay these bills.
Planning for these fees ahead of time offers a way for you to avoid unexpected bills
5. Legal Fees
You might also encounter other legal fees that you were not planning to pay in addition to eviction fees. If you ever encounter a tenant or property issue, you might need to visit a lawyer for advice and help.
Attorney fees are not affordable. If you don't plan for these expenses, you might encounter some substantial bills that you were not expecting. Legal fees are a typical hidden cost of owning rental property.
6. Emergency Repairs
The next hidden cost you might have with your business is emergency repair bills. One thing you can count on with rental properties is emergency repairs. The other thing you can count on is that they will be surprises.
You cannot predict when emergencies will arise or how often they will occur. You also cannot predict how much they will cost.
If you want to avoid surprise expenses, you'll have to plan for emergency repairs.
7. Loss of Income from Vacancies
The last hidden cost to recognize is different from the others. This cost is the loss of income you may experience from vacancies.
With rental properties, you only collect money when people live in the units. When a property does not have a tenant, you stop earning money from the property.
Many landlords create budgets based on 100% occupancy. The problem with this is that you will not have 100% occupancy. You will have times when your units are vacant, and these situations will result in a loss of income.
Adjusting your budget to a 90% to 95% occupancy rate might be more realistic and safer for your budget.
How to Boost Your Profits
Running your own rental properties might seem like the best option, but you might be able to increase your profitability by hiring a company to take over the management duties.
Property management companies are experts at managing properties, and they know how to plan for all the rental property costs you may encounter.
If you would like to learn more about the services offered by a property management company, call us today for more information.