Cost Associated with An Investment Property
Buying an investment property can allow you to generate income. But buying an investment property comes with expenses that don't end at the closing table.
Knowing what you can afford is one of the first questions you need to ask before you invest. Aside from initial costs, rental property investments encompass a range of expenses. You’ll want to understand all expenses before you buy.
One of the costs associated with rental property investment is property tax. Your tax bill depends on your property's location and value. The assessed value is determined by the county assessor in which the property is located. Look on the real estate listing for assessment and tax information. If you believe the assessor has placed too high a value on your home, you can challenge the value for tax purposes. Property taxes may be tax-deductible on your tax return.
Maintenance costs differ for every property. You must have adequate funds for the maintenance of your rental property. You’ll want to account for upkeep to the outside, inside and common areas of the property.
In addition, these costs can relate to occasional repairs such as the building’s heating system, roofing, or plumbing. Many things can impact this, such as the condition, age, size and type of property. Overall, maintenance costs should include:
- Seasonal landscaping and tree pruning
- Gutter cleaning
- Pest control and treatment
- Light bulbs, HVAC filters and other supplies
- Cleaning of common areas
- Snow removal
Typically, tenants pay most utilities. You'll need to determine if your tenants will pay the utilities directly or as part of their rent. This expense can range depending on both the location of the property and usage of utilities. Consider electricity, gas, water, sewer, trash and recycling.
Property Management Fees
Since even the best landlords need help, a professional property management company can add significant value to your investment. Duties and responsibilities of a property management company include setting rental rates, collecting rent, screening tenants, marketing, managing maintenance and repairs, and handling lease agreements.
The cost of property management will range from a percent of the monthly rent or a flat annual fee. Although these additional costs will impact your bottom line, the benefits of a property manager consist of reducing stress, higher quality tenants, shorter vacancy cycles, better processes, fewer responsibilities and fewer legal problems.
You’ll want to ensure you're protected from any liability or financial loss should something happen. A standard homeowners insurance policy only covers your primary residences. As a landlord, you need different insurance than you have for your home.
You’ll want to contact your insurance agent to review your property specifics. Some coverages you should discuss:
- Dwelling coverage. Protects your property if it’s damaged by a covered peril such as a fire, lightning, wind or hail.
- Other structures. Covers structures on your property other than the primary building. It would cover fences, sheds and detached garages from damages caused by included perils.
- Personal property. Protects your personal property used to maintain or service your property such as appliances and lawn equipment. This doesn’t cover the tenant’s contents. Tenants will need an insurance policy to cover personal items.
- Liability. If you’re found responsible for an injury on your property, liability insurance will protect you.
Marketing and Tenant Screening
Tenant turnover is inevitable. To properly market your unit, you'll want professional photos and advertise on real estate websites and social media.
And don’t forget about screening potential tenants. Although you don’t have to screen, the benefits often outweigh the cost. The important thing to keep in mind is that the screening reports need to be properly accredited by respective organizations.
Besides standard repairs, you may want to upgrade your investment to make it more enticing for potential tenants. Capital improvements improve the condition of the property and extend its life. Account for the lifespan of the following:
- Replacing appliances
- Heating, Ventilating and Air Conditioning
- Water heater
- Roof and gutters
- Countertops and vanities
- Remodeling bathrooms and kitchens
Due to tenant turnover, vacancy costs are a rental property expense that may be impossible to avoid. Vacancy costs are the expenses you will endure if the property goes unoccupied for a while.
How Glowacki Management Company Can Help
Thinking of investing in real estate? Glowacki Management Company, LLC can help. To learn more, contact Garrett Shames at (814) 452-3681.