Having rental properties gives you a steady flow of income every month. When you are still in the planning phase, you would not even think about the possible costs of owning a rental property.
Yes, owning a rental property comes with a lot of hidden costs so if you have apartments or houses for rent, you need enough funds to cover these costs. You don’t have to worry because you can always get small business financing at various lenders.
There are hidden costs, but this type of business venture is indeed pretty lucrative. Knowing these hidden costs might help you prepare in the future so you won’t be surprised by how much you are going to spend on it.
1. Tax and Insurance Fees
If you have a rental property, you are already aware of the tax and insurance fees associated with it. You have to remember that the taxes you pay for a rental property are completely different from a normal residence and it is much more expensive. It is the same with rental property insurance as it is more expensive compared to the payments done by the owner of a residential property. There are additional costs to your insurance as it contains more protection against risks that are not usually found in a primary residence. It includes the possible lawsuits filed by the tenants.
2. Management Fees
Property management is very time consuming, especially if you have a lot of properties that you need to handle — so it is often better to let someone manage your properties for you. This is another cost that you have to consider because even if the rental property is vacant, you will have to handle the salary of the property manager. The salary of a property manager is different depending on various factors, but you usually give up at least 10% of the rent of every property that they manage.
3. Maintenance Fees
No matter how careful you are with your properties, it’s impossible to keep your property in perfect condition. Things can be broken or damaged anytime and it is something that you have to deal with right away. This is true for older properties as they usually encounter more frequent issues and repairs or replacement would be required for this. You have to remember that if a problem arises in one of your properties, it is your responsibility to deal with it. When a tenant leaves, you have to check the property and see if there are damages.
4. Bad Tenants
No matter how strict you are with your selective process, you will encounter a bad tenant who is always late when making monthly payments. There are even times that they would skip two months or more before they pay. Some tenants would destroy the property itself and this would cost you a lot of money.
5. Vacancy
Vacancy happens to any rental property and it can happen to yours as well. You have to remember that when your property is vacant, you are still paying the taxes and other fees, but you are not getting anything in return. Unfortunately, there is no way to eliminate the possibility of a vacancy on your rental property; if you have multiple rental properties, one or two vacancies may not affect you too much financially, but what would happen if there are four or more vacancies in your rental property? Increasing the rent is out of the question because there is a risk that the current tenants would leave because of the high rent payment and no one would even consider checking out your vacant properties.
Conclusion
The best possible solution is to save money from the rent that is being paid to you. This would be allocated to your emergency funds and if one or more of your properties become vacant, you can use this money to cover the expenses.
These hidden costs are intimidating, but there is always a way to deal with it. You have to remember that rental properties are very lucrative and you can earn a lot of money from this, but you have to understand the fees and costs associated with it.
As long as you know what you need to keep in mind when it comes to fees, you won’t have to be stressed if an unexpected problem occurs. Getting small business funding can also be a lifesaver.
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Great article. Very helpful. Thanks!
As a landlord myself, spot on. All this talk of “not paying rent” and “no evictions” is fine, but is the state going to give me relief on my real estate taxes (1/3 of the rent I take in), or the maintenance, insurance… Providing housing is not free. Also, real estate is no passive income as many say it is. All that said, over the long run, a good investment in most cases.