What To Expect When Investing In Rental Properties
Investing in real estate is a great way to establish a stream of positive cash flow that can help you achieve your financial goals. Whether you are managing just one rental property or an entire complex of rental properties, you may be able to find the financial freedom and security that you desire with this investment method.
However, as with any investment opportunity, there are costs associated with owning and operating rental properties. Having a clear understanding of these expenses can help you to visualize the best way to manage your properties.
Here’s a quick breakdown of the expenses that you can expect when investing rental properties.
Upkeep And Repairs
When you own or manage a rental property, you’ll inevitably have to pay for some repairs. This may be as simple as the cost of upkeep, such as shampooing carpets, painting walls and replacing heating or cooling components. It may also be as complicated as repairing structural damage or replacing appliances, doors or fixtures.
It’s almost impossible to accurately predict just how much you will have to spend on these items in any given year for a specific property. In many cases, repair costs are incurred after an unexpected event. Even so, you can reasonably expect to spend about 1 to 2 percent of the value of the rental property each year on regular upkeep and maintenance. This figure might be higher in the event of an unforeseen emergency but this is a good place to start when you are tallying up your projected expenses for a property.
Coverage
No matter what type of rental property you own, you are going to need plenty of insurance. Fire, flood and earthquake insurance are going to be necessary, as well as any special types of insurance that might be required in your area. Schedule a meeting with your insurance agent to find out exactly what kinds of coverage you are going to need for each one of your properties. Use this information to create an estimate for how much you’ll need to spend on insurance policies.
Support Staff
If you are managing your own rental properties, then you only have to worry about how much to pay yourself. However, property management is very time consuming and you may not have the ability to manage all or even one of your properties. If this is the case, you’ll need to hire a property manager.
In addition, you may also have to hire and pay one or more maintenance workers to keep your properties in good shape as well as an office assistant to handle paperwork and details on site. All of these employees will need to be paid and these costs can really add up. Take the time to figure out if you want to be a manager or if you want to hire management and talk with some other property managers to find out more about their salary and their duties.
Landscaping, Pests, Etc.
There are many other costs associated with rental property ownership. It may be helpful for you to tour the property to see exactly what you will need to pay to maintain in order to keep your tenants satisfied.
If done correctly, investing in rental property can be a very reliable and lucrative cash flow stream. Use this list to draw up an estimate of all that you’ll have to spend in property ownership in order to get a better picture of your possible profits.