Whether by accident, as in the case of investments intended for quick sale ending up in a hold pattern – or design, where the investor intended to hold and rent property – most real estate investing professionals find themselves in the role of landlord, at one point or another. Hidden expenses inherit to being a landlord have caught some real estate investment professionals by surprise.
It’s important to account for these costs to ensure your financial picture remains accurate as your portfolio changes.
Insurance Premiums
While most real estate investing professionals will be well aware of the insurance issues involved in investment properties, some new investors are caught off guard by the 25% jump in insurance premiums.
Landlord Insurance policies cost up to a quarter more than typical homeowners insurance policies for the same property. Be careful not to rely on the rates of the previous owners to forecast your insurance costs as a landlord.
Legal Fees
While you may be accustomed to the usual lawyer fees that accompany real estate acquisition and disposition, you may not account fully for the services you will need to account for as a Landlord.
It’s important that you budget money and time for getting legal advice to learn your rights and responsibilities and to draft rental and lease agreements.
Some lawyers will offer a Landlord package, while others will bill by the hour for services rendered. Keep in mind that even with packages available, additional charges will apply if a tenant eviction or other legal matter arises in relation to the property.
Property Management Charges
You’ll have to account for the time or costs related to managing the property. This includes interviewing potential tenants, running their credit histories and checking references in addition to tasks related to marketing your vacancies.
While many real estate investment professionals are happy to pay a Property Management company 10% of the monthly rental fee for these easily outsourced, some choose to train their own team.
Administrative Charges
As a landlord, you may have to register your property as a rental, pay for inspections and possibly pay for a class on being a landlord in your municipality. While the fees for such things are often nominal, they can add up quickly. You’ll want to account for them in your financial planning.
Cleaning, Maintenance and Repair
Most real estate investment professionals are well aware of the cost of renovations, but accounting for regular maintenance and emergency repairs may be a new experience. While security deposits are often sufficient for most clean up costs involved in tenant transitions, it won’t suffice in cases where the tenant skips out on the rent for several months or badly trashes the place. Be prepared to keep a healthy budget for “unexpected” expenses.