We are reader-supported. When you buy through links on our site, we may earn an affiliate commission.
Being a landlord is tougher than most people realize, and it can be especially strenuous on your wallet. Before fully immersing yourself in property management, it’s important to know what costs to expect. Only then will you be able to make a profit and provide a good service for tenants.
Here are some of the most common expenses of being a landlord.
1. Turnover and Vacancies
Regardless of how often you advertise and how clean you keep your property, there will always be turnover and vacancies. While units sit empty, you’re left without cash flow. Meanwhile, you still have to pay the mortgage, deep clean, repaint the apartment, replace the carpet, and repair any damage security deposits didn’t cover. Additionally, you’ll have to factor in the cost of the marketing involved in finding new tenants.
Budgeting for maintenance can be tricky since repair costs vary depending on the issue. Some expenses, like landscaping and basic cleaning, are predictable. However, others may not be foreseeable. For example, you never know when a pipe may burst, an appliance will stop working, or an emergency like a fire or flood may occur. To better prepare for any and all maintenance costs, allocate at least 1% of the property’s value each year to these expenses.
3. Regulation-Related Expenses
In addition to making repairs and performing routine maintenance, you must also keep everything up to code. Doing so may require you to update security systems, install new fire alarms, and salt and shovel sidewalks in the winter. Regulation-related expenses may also include rental license fees, mandatory inspections, and registration costs.
If you’re a new landlord or are thinking about becoming one, you’ll have mortgage payments to make after purchasing the property. Doing so may require a large chunk of your budget in the beginning as you work to fill units.
However, once you have tenants, a decent check of their rent payments will go straight to the bank. After paying the mortgage off in full, you can begin using more of the rent for other expenses.
Property taxes are indicative of owning rental property and come with the territory. Often, these are easy enough to predict and budget for. However, you’ll also have to pay taxes on the rental income you receive — an amount that isn’t always so easy to anticipate. To minimize your tax payment, you may claim tax deductions for operating costs, depreciation, repairs, and a few other expenses. Still, the cost of bookkeeping and accounting may negate any savings you’d make.
6. Insurance Policies
Rental properties tend to sustain more damage than a typical home. Therefore, you can expect to pay about 15% more to insure yours. A comprehensive plan will cover property damage and lost rental income and offer liability protection. However, if you want flood insurance, emergency coverage, or guaranteed income insurance, you’ll have to purchase additional policies that will cost more money. When shopping for policies, inquire about bundle options to minimize expenses.
Some landlords choose to charge tenants for utilities by either asking more for rent or requiring occupants to set up gas, electricity, and water in their own names. Other property owners pay for utilities themselves — or a few like trash removal and water. Regardless, when tenants move out, you must still keep these utilities on and pay the bills — however small they may be. Thus, the extra expense of utilities and how much you spend is up to you.
Budget Wisely For Common Landlord Expenses
While the above expenses may be the most common for landlords, you must consider others, especially if you own a large number of units and manage a full team. In this case, you’ll have to pay office staff, property managers, maintenance workers, and accountants. Therefore, it’s best to think about all expenses and budget wisely, so you never end up in the red.