If you are considering buying a rental property, there are a lot of pros – you can pay off your mortgage more quickly by utilizing the rent money, and you can benefit from the passive income. Before you finalize the sale, though, consider all of the costs of owning a rental property that you will be responsible for. Property managers know that profit is much more complicated than simply subtracting your mortgage payment from the rent you receive.
Taxes on your Property
The property taxes for your rental property are collected annually, so it can be more difficult to factor into your monthly budget if you paid cash for your rental property. However, after you know how much your taxes will be for that year, you can divide that amount among your tenants and incorporate it into the rent. Most mortgages will combine your prorated tax payments into your monthly payment.
Property Insurance
It’s unwise to just go with the least expensive insurance plan you find. Each company offers different coverages, so be sure to gather as much information as you can about each one. It may help to speak in person with a representative from each company so that you can ask questions, receive a quote, and be sure you fully understand what is offered in each plan before making your decision. Property managers need to realize that they need to inform the insurance company that they are planning to rent the home or condo to third parties.
Plan for Empty Units
While ideally, you would have full occupancy all of the time, you need to plan for times when you may have empty units or empty property. These include when you’re having renovations or repairs done or having difficulty finding a tenant. You should budget for these times as well as you can. Pay close attention to your communities of interest. If there are many attractions close by – or if annual statistics show that more people are moving to the area – it’s unlikely you will have to deal with vacant units for extended periods. Investing in better amenities for your property is also a great way to attract tenants and keep your units full. Renting out a property in the Sarasota area is typically relatively easy, but you still may need some time to vet your applicants properly.
Maintenance Costs
Though you likely have tenants paying their utility bills like water and electricity, you have to budget for the utility bills that you will be responsible for. Parking lot lights (or motion floodlights at a single-family home) are an investment, but they make tenants feel much safer when walking around your property after dark. These lights are big and bright and thus can make up a significant portion of your electric bill. To get the best use out of your lighting:
- Update the bulbs to LEDs that use less energy
- Routinely clean the light sensors to ensure that the lights aren’t turning on before they’re supposed to
- If lights are on a timer, adjust the timer for the current sunset and sunrise times.
Other Costs
You need to power and cool your office building and amenity areas, including gyms, pools, or community centers. When items break that your on-site maintenance worker cannot fix, you will need to quickly hire an electrician, plumber, or another specialist so that your tenants aren’t put in unsafe or unlivable situations. Landscapers, cleaners, and other service workers will need to be brought in regularly as well. It’s wise to budget at least 15% of the rent you charge for miscellaneous maintenance and repair work that will need to be done each month.
Promise Electric is Sarasota’s trusted electrical service company, employing a professional team of master electricians for residential and commercial work.
