Becoming a landlord can be a great way to make some extra money, but it’s important to be aware of the expenses you’ll incur along the way. Here are five expenses that many new landlords underestimate so you can avoid potential pitfalls.
5 Expenses New Landlords Usually Underestimate
Check out the five most commonly underestimated expenses that catch new landlords by surprise:
- Property taxes
- Tenant screening
Here’s a closer look at each.
Surprise Expense #1 for New Landlords: Property Taxes
Depending on where your rental property is located, your property taxes could be quite high. In fact, they’re one of the biggest ongoing expenses associated with owning a rental property.
Be sure to factor in your estimated annual property tax bill when you’re budgeting for your rental property expenses.
Surprise Expense #2 for New Landlords: Marketing
If you’re not proactively marketing your rental property, it could sit vacant for months at a time, costing you a lot of money in lost rent.
To avoid vacancy-related losses, create a budget for marketing your rental property. This could include the cost of listing sites, signage, and any print or online advertising you plan to do.
Surprise Expense #3 for New Landlords: Tenant Screening
Tenant screening can take up a significant amount of time – and it costs money. But a good tenant screening process will help you avoid problem tenants who are likely to cause damage, miss rent payments, or otherwise cause headaches. The cost of a tenant screening service is a small price to pay to avoid the potential costs of a bad tenant.
Surprise Expense #4 for New Landlords: Vacancies
Even if you do everything right, there’s always a chance your rental property will sit vacant for a period of time. When budgeting for your rental property, be sure to factor in the possibility of vacancy-related losses.
Surprise Expense #5 for New Landlords: Evictions
If you find yourself in the unfortunate position of having to evict a tenant, it will cost you both time and money. In addition to the legal fees associated with eviction, you’ll also lose rent during the vacancy period.
While evictions are always a last resort, be sure to factor the potential costs into your budget so you’re prepared if it does happen.
How to Solve Most of These Issues: Hiring a Property Manager
One of the best ways to avoid many of these potential expenses is to hire a property manager. A good property manager will handle most, if not all, of the day-to-day tasks associated with being a landlord – from marketing and tenant screening to rent collection and maintenance.
While hiring a property manager will add to your overall expenses, it can save you a lot of money in the long run by helping you avoid many of the common mistakes new landlords make.
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