Rental investment is a wise move for earning a passive income. However, it is not a one-time investment, as it seems. It has other hidden costs that have a significant impact on your finances. Landlords often overlook these additional costs and fail to meet their financial obligations due to a lack of awareness.
Here is a list of some unexpected costs landlords should know about, while owning a rental property.
While owning a rental, you will face the extra cost of property taxes. Different taxation systems apply to your primary residence and rental house. There will be a standard deduction from the landlord’s gross rental income, i.e., total income, after deducting the monthly expenses, such as mortgage interests, repair issues, utility bills, and council tax.
For example, if you earn $5000 as your rental income, you may have to pay $1100 tax on your property. If your rental income exceeds monthly expenses, you may have to pay taxes based on the amount.
Rental Property Insurance
Landlords can get rental insurance that covers risks, including damage to property structure, lawsuits filed by tenants, vandalism, and theft. In case of a total loss, your insurance policy can cover the full replacement cost for your unit.
Apart from that, landlord liability insurance covers tenant’s injuries or third person’s bodily injury. The premium of insurance depends on the type of asset. Landlords have to pay 15% to 20% more for rental property insurance. Having said that, it is good to hire local insurers to get an exact estimate of insurance payment for your unit.
Rental Maintenance Costs
Landlords need to invest in regularly checking the structural integrity of their assets. You need to do maintenance and repairs to make the place habitable and pleasing. Maintaining a house by yourself is challenging. You can’t conduct property inspections or handle repairs and fixtures alone. In such conditions, you have to involve property managers to get the regular maintenance done. Every manager takes a different maintenance charge. You can calculate your budget and hire according to your upkeep requirements.
You may also require legal advice while renting out a property and this entails legal expenses. Hire an attorney for legal pieces of advice while drafting a lease agreement, deciding security deposit, following evictions, setting pet policies, and determining rents, to ensure that there are no loopholes in your lease agreements.
However, although consulting legal experts can be expensive, it can prevent future legal conflicts which would end up costing you even more.
Costs Involved in Maintaining A Vacant Property
If your rental is in a popular location, it will stay in demand. You will be able to attract potential tenants, especially when you provide all amenities at an affordable price. In a prime location, you might not face the frequent vacancy issue unless you evict your tenants. In such conditions, you will search for new renters, which might cost you extra money.
However, if your property is not in a very popular location, you will need to set aside a budget for maintaining your rental in case of a vacancy, without the monthly rental income. You can allocate funds or have contingency plans to go through the vacancy period if the rental income is the only source of survival for you.
Property Management Fees
Professional property managers can make life very easy for an investment rental owner. They can list your rental, conduct tenant screening processes, collect rents, and maintain your unit, among other tasks. If you want to run your rental business successfully, you must strongly consider hiring property managers and include their fees in your list of other expenses.
River Drive Properties is a leading property management company in Merced, California. We provide a detailed analysis of the extra costs that landlords may need to pay, and thus help you manage your property cost-effectively. Contact us at River Drive Properties for more information about average maintenance costs and other expenses involved in owning a rental property.