The great thing about investing in rental properties is that the returns are predictable. That being said, newbies can lose their shirts when they fail to properly calculate six major rental expenses:
If you've done your homework and your appliances aren't ancient, you are unlikely to have repair bills each month. This is a good thing as repairs should be an inevitable and anticipated expense ranging between twelve to fifteen percent of what you collect in rent. General maintenance should also be factored into that amount. Over the long haul, you will be faced with some sort of repair and you do not want to be caught financially ill-prepared. Start planning for this expense from the very first month that your property is occupied.
Related: 6 Signs of a Premium Tenant
Like it or not, empty properties cost money. Not because you are paying for repairs, but from the standpoint that you are not generating income. Your end-of-year profits will reflect all vacant days and you will need to anticipate this expense based on your property's neighborhood vacancy rate. Some rates could be twenty percent or higher, but do your homework to learn what you can anticipate as a percentage.
Related: 12 Landlord Nightmares
Rental investors are wise to establish relationships with multiple insurance agents specializing in rental investments. Learn the policies of each company, fees, options and imposed restrictions in order to anticipate your monthly expenses regarding insurance. You will also want to inquire re: breed restrictions in the event that you plan to rent to pet-owning tenants.
Each property has its own personal assessed value from which annual property tax is calculated. This is the easiest monthly expense to calculate. Convert the tax amount to a percentage of the monthly rent you plan to charge in order to add this to your list of monthly expenses.
Property management must be factored into your monthly expenses whether you tend to hire a company or not. You don't know if you might grow weary of property management or, hopefully not, physically unable to do so. Emergencies are part of life and you cannot plan when one might occur. In addition, you need to place a monetary value on your own labor! Do the research and find out what a good property management company would charge and then factor the expense into your monthly budget.
Self-managing property owners will need to perform periodic site inspections on their properties. In addition, you will need to keep track of expenses and miscellaneous fees. Don't make the mistake of forgetting to budget for these items! You will also need to decide if you plan to pay for professional bookkeeping services or hire an accountant.