Keeping a balance between maintenance and repair costs and rental income is crucial for estimating profits. As a rental property owner, you’d never want to bear losses on your investment.
Indeed, reports suggest that negative income flow is one of the most common reasons why rental property owners sell out their investment property.
Thankfully, there are easy ways to estimate expenses and income, thereby expanding your profitability from your rental property.
Fixed Expenses For Rental Property Owners
Most rental property owners assume to incur maintenance and repair expenses only when they have a tenant for their property. Or sometimes, when they are pressing to sell it out in the market.
But, that’s not entirely true.
As a matter of fact, some operating expenses are payable irrespective of whether there are tenants or not.
Perhaps, these fixed expenses for rental property owners can help make a budget.
So, what are these fixed expenses?
Let’s have a look at them.
Rental property owners need to bear property taxes, no matter what. Typically, a county assessor is consulted to estimate these taxes. That being said, please note that property taxes are recurring expenses and can vary, depending upon remodeling or any improvements that you make to your property.
Typically, when you have a tenant, the utility bills will be paid by them. In contrast, when there are no tenants, the owner’s responsibility is to pay for electricity slides. It is noteworthy that this bill would be a bare minimum, usually known as rent for grid connections.
Another expense that is to be borne by the property owner is preventative pest control. Typically, these are also to be maintained irrespective of whether you have a tenant or not.
Landlords are usually responsible for maintaining the cleanliness of the property and the area around it. The waste management expenses may vary depending upon the type of property and its location.
It is noteworthy that there are primarily two types of home insurance covers. One is for the landlord, or commonly known as homeowners’ insurance. And the other one is for the tenant, widely known as tenant’s insurance. These two policies differ in the covers they offer. Nonetheless, it is the former that is to be borne by the landlord.
Now, if the area where you have your property has a resident’s welfare association, you might need to bear HOA fees. Or, as it is better known – homeowners’ association fees. Localities in metro cities usually have such expenses listed on any for-sale property. For example, a spokesperson from a la property management company explains that HOA fees are a standard for rental property owners in most localities within the city. You’ll need to know more about these expenses, as they usually increase after a certain period.
Property Management Fees
A property management fee is only payable if you have someone to manage your property. Usually, the fee is around 6%-8% of the rent. It is noteworthy that this fee may not include re-leasing costs in case of tenant turnover.
Variable Expenses For Rental Property Owners
Apart from the fixed recurring expenses, there are some variable expenses too. These expenses may or may not depend upon the tenancy status of the rental property.
Let’s have a look at them.
It is inarguably true that your property won’t be rented throughout the year. Or, for that matter, all the time. There may be instances when there are no tenants on your property for weeks or months. In such a situation, you may still have to pay your property manager and other expenses. So, it would help if you calculated the vacancy cost for your property too. It can be calculated as a factor of annual rental income to the lost revenue due to vacancy. For example, if your property is vacant for one month in a year, the vacancy expenses would be 1/12th or 8.3% of your income.
Of course, as a homeowner, you’ll be responsible for its maintenance. It may include regular as well as seasonal maintenance costs. For example, maintaining the landscape around the house during spring or sealing off the cracks and crevices before the fall.
If you’ve provided your tenants with fixtures and appliances in your rental property, maintenance of these fixtures would also be your responsibility. It may include the maintenance of the HVAC system, plumbing or heating system, and so on. It is noteworthy that these expenses may vary depending upon the tenancy status of your property.
Although such situations are not very common, they still demand preparations beforehand. For instance, a water pipe may burst in the middle of the night due to freezing temperatures. Likewise, the AC unit may break down during a heatwave. Such situations demand immediate solutions. And yes, these expenses are to be borne by the landlord. Besides, emergency maintenance helps build a good chance of re-leasing the property with the tenant. Thus, reducing vacancy expenses.
Painting And Flooring Maintenance
Painting helps maintain the curb appeal of the property, both on the inside and the outside. Similarly, flooring maintenance also adds value to the property. And these maintenance expenses are to be borne solely by the landlord. As the property owner, these expenses make up for a significant portion of your variable costs. It is also noteworthy that these expenses are not recurring, meaning they are only to be paid when there are any visible faults or damage.
Should You DIY Repairs To Save Money?
DIY maintenance may save you some money, but that’s only true if you’re familiar with the skills and the maintenance tasks. In most cases, it is rather beneficial to hire contractors or at least have a property manager overlook these tasks.
In a nutshell, rental property maintenance and repairs can be a breeze if you know how to handle them effectively. Or otherwise, you can always find professional help for such tasks.
At last, we hope that this article has helped you gain the necessary knowledge about rental property management and the expenses associated with it.