There is the old adage: “Anyone can be a landlord, but it takes someone special to be a good one.”
Okay, maybe that saying does not actually exist, but it’s true enough. There are many misconceptions about what landlords can do, should do, or do not do. Like many other professional—or at the very least, cordial—relationships you have in life, a landlord-tenant relationship can make or break the all-around rental experience.
As a landlord, there are certain financial expectations that come with the role, most of which are expected, others that may fall under the radar. This piece will explore many of the expenses landlords are responsible for, giving you a general breakdown of where most rental income goes.
We are starting off easy here but assuming the property hasn’t already been paid off, mortgage payments for the property your tenants occupy is an obvious—and very large—financial responsibility. This is where a decent chunk of your rent payments goes to.
Maintenance and Repairs
This is another obvious expense but one that is often overlooked as something that’s both timely and pricey. Whether you decide to make a repair yourself or outsource the job to a contractor, a fix-it job will always hit your pocket. These can vary from fixed costs—routine maintenance like garbage removal, pest control, or snow removal—to variable costs—ones that are budgeted for but still happen unexpectedly, such as appliance repairs or property damage.
Landlord insurance is critical to have as it protects the physical property from accidents to fires to severe weather and loss of use. Liability insurance is also a necessity to protect your financial assets if a tenant sues you.
Taxes and Fees
Property taxes are an obvious one to note but as a landlord, you will also be paying tax on the rental income you receive from your tenants.
Hiring a property manager to handle day-to-day matters, though a smart way to manage your property, is a cost in and of itself. Manager fees can run from 8 to 12% of the monthly rental value.
It’s also worth noting that many investment properties are excluded from the homestead exemption provision, resulting in increased taxes for landlords that homeowners are not affected by.
While some landlords include utilities in their rent, the fact is that many can still wind up paying out of pocket. It’s easy enough to put the onus on tenants when units are occupied, but when you have empty ones in your building, those units’ expenses land on your plate.
Keeping Your Building Up to Code
Creating a safe space for habitation is an ongoing process and it doesn’t come cheap. While code requirements may slightly differ according to city or state, certain requirements, like inspections, rental license, and annual registration fees are fairly universal, no matter where you live, and are all crucial to keeping your property up to code.
Unit vacancies can really take a hit to your pocket, particularly if you are still paying the property mortgage, and the less occupied units you have, the more out-of-pocket costs add up. Common expenses for when tenants move out include repainting walls, replacing carpets, and fixing any minor damages from a tenant’s rental period. Consider, also, moments in time when the market is slow and new tenants are hard to come by. Time is almost always money.
Advertising and Marketing
Whether you handle your property’s marketing yourself or outsource it, it will cost money to find new, quality tenants to come your way.
Evictions and Legal Fees
A healthy, trustworthy landlord-tenant relationship is important for both parties; good tenants build trust with their landlords and good landlords are bound to keep the good tenants around longer. But not every relationship is built to last. Evictions are a timely and costly process. Eviction filing fees, lawyer fees, court fees, and time spent in court all amount to thousands of dollars you are losing.
Even if an eviction is not taking place but you are facing challenges with a tenant, you might still need to consult a lawyer regarding your rental agreement and state rental laws.
Such problems can never be 100% avoided, unfortunately, but it’s good to know your role, the laws, and budget as much as possible for any unforeseen incidents.
Doing background checks on potential tenants costs money and while the expense can, in some cases, be passed to the applicant, landlords often pick up this cost.
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