Hidden Costs That can Sink Your Rental Properties
When it comes to real estate investing, each property in your portfolio should be regarded as an individual venture. Some months everything might be running smoothly, but out of the blue you could be faced with a vacancy or eviction. By knowing all the possible problems and costs that can arise, you will be better placed to cope with them. The following hidden costs can make you regret that moment when you bought your rental properties.
Maintaining the Property
Blocked toilets, for example, are not hugely problematic, however you still have to contact someone to get them fixed. During the year, you could certainly accumulate a bill of at least $400 in maintenance fees. While small maintenance tasks will not bleed you dry, once you take all the costs into account, you could be looking at the equivalent of one month’s rent.
Application Fees
Towns in some areas charge costs or fees each year to rent out properties. This is particularly common if you own a house in a university town, and rent out to students. Usually, the fee is about $150 per year, however in some towns it is considerably more than this.
Travel/Gas Costs
It is fairly common for rental properties to be located a short drive away from where you work or live. If you deal with property management issues that come up yourself, you will have to drive to your house each time a problem occurs. If the house is fifteen miles away, it will be a thirty mile journey there and back. If you make this journey four times each month, you will travel 120 miles. This amounts to at least two trips to the gas station.
Demands on Your Time
Renting out a property will occupy much of your time. If you do not use a property manager, you will have to answer tenant phone calls and read applications from tenants yourself. This will take a minimum of a few hours during the week, and a few hours over weekends. Your time is valuable, so this is a key consideration.
Equipment
Even if your house is unfurnished, you still should have some basic tools — such as a few rakes, brooms, shovels and a trash can for use in the kitchen. A snowblower for your drive and a lawnmower for your garden are also essential, if you intend to self manage. A standard toolkit and power screwdriver will come in handy for unforeseen interior repair issues.
Evictions/Vacancies
You might have a model tenant, who gets sacked from their job or becomes ill suddenly. Then, you could be faced with an eviction or vacancy within thirty days. This is difficult for a couple of reasons. Firstly, you will lose your rental income. And secondly, you will need another tenant. Your property might be unoccupied for sixty days or more.
It is vital to put away emergency money for each house you own. Ideally, you should have a minimum of a few months mortgage payments available for use immediately. Once you have estimated your associated costs for a property, add on a further ten percent for miscellaneous expenses.