Owning a rental property can be a great way to earn passive income and grow your portfolio as an investor. However, rental properties also tend to come with a long list of costs that many new, self-managing landlords do not initially expect when they decide to start investing.
As a landlord, it is crucial to avoid overspending in order to make sure that your rental property remains profitable. While your expenses and costs may fluctuate over time, it is important to always keep a close eye on your spending and minimize it wherever possible.
In this article, we will go through the most common expenses that landlords may not realize are getting in the way of their rental property’s profitability. These five areas can be the biggest causes of unexpected expenses.
Costs of Being a Landlord: 5 Unexpected Expenses
1. Unexpected Maintenance Costs
As a landlord, it’s important for you to keep your rental property in the best shape possible. This means keeping up with any maintenance or repairs that need to be done, which unfortunately can cause you to incur a long list of expenses.
Being a rental property owner, you are most likely well aware of these costs. However, many landlords often fall into a negative pattern of under-planning for future moderate and major repairs. For example, if your tenant reports a leaky faucet in the rental home, you most likely will not have to pay a large amount of money to get it fixed.
However, if you fail to fix the issue quickly, or if you choose not to have a full plumbing inspection done on the property, the leaky faucet may cause other issues like a broken pipe, a flooded basement, excessive water damage, or mold growth.
The truth is that in the end, any of those maintenance issues will end up costing significantly more than it would have to fix the leaky faucet in the first place, in addition to having a full plumbing inspection performed on the property.
By skipping small repairs and inspections, you will most likely end up paying significantly more money in the long run. Working with a property manager means you don’t have to think about all of this. They’ll schedule property inspections, read through tenant maintenance requests, and dispatch a professional to the property quickly.
To avoid having to handle costly repairs on your rental property, make sure that you remain diligent and organized when it comes to scheduling routine inspections and making small repairs as needed.
These inspections will help you find small issues in the home as early as possible, allowing you the chance to be proactive and avoid large and costly maintenance projects.
Further, it is crucial that you are able to respond to your tenants’ maintenance requests in a timely manner, as this will help your overall relationship with your residents in addition to keeping your property in good shape. This is another great reason to work with a property manager – they will have a system to make sure tenants are taken care of as quickly as possible.
2. Legal Fees
It can be extremely beneficial to have a legal partner on your side to help you navigate the often confusing legal aspects of owning and operating a rental property. However, it is absolutely crucial to make sure that you are partnered with the right legal professional. If not, you could end up with a higher invoice than you were expecting.
Make sure that you speak with your legal partner regularly about the services you need them to provide and how much it will cost. Further, you will always want to choose someone who has specific expertise and experience in real estate.
By asking a potential legal partner the right questions ahead of time, you will have a better understanding of what to expect when it comes to the cost of their services. Will you be charged by the hour? Will you be charged a retainer fee?
While it is important to choose the right lawyer for your business and ask the right questions in order to minimize expenses, that isn’t the only aspect of your legal fees that you need to keep a close eye on as a landlord.
The fact is, if you need constant legal assistance for your rental property, you may need to update your pre-screening process for potential tenants. If keeping track of legal responsibilities and local landlord-tenant laws is getting overwhelming, contact a property manager in your city. They’re well-versed in these laws and can help you navigate complicated legal situations.
3. Irresponsible Tenants
Sometimes when you own a rental property, you may feel pressure to fill your vacancies as soon as possible in order to avoid losing too much money. Many landlords will skip pre-screening steps with prospective tenants in order to speed up the process, however, we never recommend taking this route.
While properly screening your applicants prior to choosing your next tenant can seem time-consuming and daunting, cutting corners in this process can result in unfortunate consequences for both you and your property.
If you end up with a tenant who is irresponsible or unreliable, you could end up losing more money in the long run. Not to mention the inconvenient headache that comes with dealing with a problem tenant in your rental property!
An irresponsible tenant can result in damage to your property, angry or upset neighbors, missed or late rent payments, and more. Plus, if you end up having to evict a tenant, you will be faced with a time-consuming and costly process. But how can you minimize the likelihood of ending up with a problem tenant?
When you are choosing your next resident, be as thorough as possible in your screening process. We recommend taking the time to look into your prospective tenant’s rental history, in addition to verifying their employment and running a background check.
Make sure that you remain diligent when checking a tenant’s references and that you are asking the right questions. This is ultimately the best way to minimize your potential expenses that can come from dealing with a problem tenant, and in the future you will thank yourself for going the extra mile to ensure that you found a good fit!
4. Vendors and Contractors
Another cost that all landlords should keep a close eye on is any expenses related to your contractors and vendors. As a property owner, you will most likely need to gather a team of professionals to help you make sure that everything is running smoothly.
You will probably have a roster of maintenance professionals, such as a general handyman, an inspector, a plumber, an HVAC technician, landscapers, roofers, and more.
This doesn’t even include the financial and business side of your rental property, which will most likely need a team consisting of legal help, bookkeeping, and maybe even a few software professionals to partner with. These are all necessary expenses for your business that are largely unavoidable.
However, the costs that can really sneak up on many landlords are the potential rate increases and hidden charges that you may not notice you are paying for. These fees can add up fast, so it is important to take the time to find great vendors and contractors who provide high-quality services and transparent pricing models.
5. Long Vacancy Periods
As you probably know, if your rental property sits vacant, you will not be able to generate a good return on our investment. The longer your property goes without a tenant, the more expenses you will be paying for without any income to balance the costs.
That’s why it is crucial to make sure that you are maintaining a high occupancy rate. If you are having trouble filling your rental property, try making some improvements to the space to make the home more attractive to applicants or take another look at your marketing strategy for the property.
If all else fails, you may need to lower your rental rates in order to fill your vacancy quickly.
Bottom Line
Keeping an eye on your expenses as a property owner is important in order to maximize your income. It always pays to plan ahead, keep up with maintenance, and screen your tenants. It can also pay to hire a property manager so that you don’t have to navigate all of those responsibilities on your own. A property manager will help you avoid these sneaky expenses and more!
If you have any further questions about how to maximize your income as a rental property owner, contact Blanket today.
