If you’re thinking about investing in rental property, you’re probably doing your due diligence to make sure it’s right for you. Likely, one step in that due diligence is figuring out what expenses you’ll pay. Smart! To help you, we’ve created this list of 4 costs associated with rental property…
When it comes to investing in rental properties, it’s easy to think of the cash flowing income. But remember that your profit doesn’t come from the gross rent but what’s left over after your expenses. For that reason, here are 4 costs associated with rental property that you should be aware of…
#1. Taxes And Fees
One of the costs associated with rental property you’ll have is the property tax you’ll pay, which could include property tax, school tax, municipal taxes, waste and recycling tax, HOA fees, as well as any potential income tax on your rental income. We can’t give you an exact amount that you’ll pay (it depends on a number of factors) but you should be aware of what the taxes will be.
#2. Insurance
Rental property is an asset and you’ll want to make sure that you and your asset is protected. For that reason, you should insure it. Make sure you insure the property and structure against damage (such as fire), as well as have some liability insurance in case your tenant or a visitor hurts themselves. Your tenant should also have insurance on their belongings.
#3. Upkeep
Another cost, which may be harder to estimate ahead of time, is upkeep costs. It can vary greatly and it can be hard to keep track of. This includes things like the costs to maintain and repair the furnace, hot water tank, roof, and the plumbing and electrical systems in the house. Upkeep costs would be incurred whether you live in the house or your rent it out, and they’re important to ensure that your rental property is a nice place to live.
#4. Time
This last cost might surprise you but it’s the cost of owning a rental and dealing with tenants. You’ll need to spend some time finding a tenant, doing a background check, making sure they pay their rent on time, and occasionally checking on the property. If you have bad tenants, things can get a bit more tricky since you will have to deal with a lot of stress and of course it will be time consuming. And, since “time is money”, there is a cost implication to you. It can be minimized, though, with an investment into a good property and a property management team.
Summary
Before you let this list scare you away, remember: every investment has costs… whether it’s the transaction fees or management fees charged by your stockbroker or mutual fund manager, or whether it’s these 4 costs associated with rental property. What’s important for you to decide is whether the benefits far outweigh the costs. And when it comes to rental property, we believe they do.