Before you buy an investment property, you need to know how much you’ll spend acquiring, leasing, maintaining, and turning over that rental home. Some of these costs will be fixed and others will be variable. If you’re buying a property that’s already used as a rental, you’ll have an easier time estimating those expenses and measuring them against your potential income.
Why is it necessary to estimate these rental property expenses before you buy? Because understanding which expenditures to look for and how to determine what the costs are going to be for a rental property will help ensure sure you’re making the right decisions when you invest in real estate.
Estimating Your Fixed Real Estate Costs
Fixed expenses are easy to estimate because you spend generally the same amount on these items every month or even every year. They’ll include costs such as:
- Mortgage payments
- Property taxes
- Landlord insurance
- Property management fees
- HOA fees
There will also be some fixed costs associated with the maintenance of your property. Pest control, for example, is easy to budget, as is pool care or landscaping charges.
You can ask the seller for estimates on these expenses as you’re negotiating the deal or you can check public records. It’s not difficult to find a property’s local tax rate and you can get quotes for things like insurance and property management.
Estimating Your Variable Real Estate Costs
Variable property expenses are going to be more difficult to estimate because they change and often they depend on factors outside of your control. Talking to an experienced property manager can help. These variable expenses you’ll need to consider include things such as:
- Vacancy
- Marketing and advertising
- Routine repairs
- Emergency maintenance
- Evictions and turnovers
It’s always a good idea to be over-cautious while estimating your expenses. It’s much better to spend less than you expected than to face a bill that’s much higher than you anticipated.
Tracking Your Rental Real Estate Expenses
Estimating what you’ll have to spend is important before you acquire an investment property.
However, you’ll also want to look at these numbers year after year once you own the asset. There will be ongoing expenses as you lease, manage, and maintain your rental properties. Tracking your rental property expenses is just as important as estimating them.
Put together a checklist of the common expenses you’ll face throughout a lease term or during a turnover. This will protect you against forgetting something critical like cleaning before a new resident takes occupancy or an increase in taxes.
When you’re intentional about tracking your rental property expenses, you’ll also have the opportunity to see how your property is performing. You’ll be able to make better decisions on this rental property and any future investments.
Detailed income and expense reports on your rental property will also help you at tax time, particularly when you’re taking advantage of deductions available to real estate investors.
Estimating and tracking your real estate expenses can be done easily when you work with a property management company. We can help you determine whether an investment is a good opportunity by walking through some numbers with you. Contact our team at Action Properties before you invest in your next rental home.
