Many investors who locked down competitive mortgage rates are now becoming accidental landlords.
Becoming an accidental landlord can be a challenging and financially draining experience. There are a bunch of hidden landlord costs that can catch you off guard.
What should accidental landlords expect from this experience? Read on for a full landlord expense breakdown.
Property Management Fees
Do you lack experience in rental real estate? Hiring a property manager might seem like a wise choice. Property managers can handle these tasks:
- Tenant screening
- Rent collection
These fees can eat into your initial rental income, but they should boost your overall profit. Research property management companies and their fee structures. Negotiate fees with property managers to find a cost-effective solution.
Inherited Property Maintenance and Repairs
Another hidden cost is maintenance and repair expenses. Rental properties often need ongoing maintenance and occasional repairs. This can include fixing the following:
- Plumbing issues
- Electrical problems
- General wear and tear
Create a budget for regular maintenance by putting funds aside for unexpected repairs. Conduct thorough inspections before renting. Consider preventative maintenance to avoid repairs.
Real Estate Property Vacancy Costs
When tenants move out, the property can sit vacant for weeks or even months. During this time, you're responsible for the following:
- The mortgage
- Property taxes
- Other ongoing expenses
Price your rental property competitively to attract tenants. Screen tenants to reduce turnover. Have a financial buffer to cover expenses during vacancies.
Utilities and Property Taxes
As a landlord, you're responsible for covering property taxes. This may also include some or all of the utilities, depending on the rental agreement. If these costs aren't factored into your rental income, they can become a financial burden.
Outline utility responsibilities in the rental agreement. Include property taxes in the rent, if possible, and adjust rent as needed.
Dealing with legal matters, such as eviction proceedings or disputes with tenants, can result in significant legal expenses. Many accidental landlords don't expect these costs.
Seek legal advice to understand rental laws in your area. Draft a full and legally sound rental agreement. Consider landlord insurance to help cover legal costs.
Accidental landlords may overlook the importance of landlord insurance. Standard homeowners' insurance may leave you vulnerable. Unforeseen expenses from damage or liability claims are tricky.
Buy landlord insurance to protect your investment. Ensure that tenants have renters' insurance to cover their belongings.
Over time, real estate property may depreciate, leading to a reduction in its value. This can affect the resale value or the ability to refinance the property.
Keep the property maintained to slow down depreciation. Review the market value of your property and make necessary improvements.
Do You Need Help Being an Accidental Landlord?
Being an accidental landlord comes with hidden costs that can impact your bottom line. With meticulous planning, you can avoid many of the financial challenges associated with rental real estate.
Getting a Merced property management team can streamline your finances. Contact PMI Merced to discuss how our services will transform your rental property business.