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Common Rental Property Expenses
Budgeting and estimating expenses are essential for managing a rental property effectively. The best tool for this is a profit and loss statement, which outlines your income, expenses, and profits. This report helps you track your monthly and annual net profits, ensuring a clear picture of your return on investment.
The good news? Many rental property expenses are tax-deductible, so it’s crucial to keep detailed records of your spending throughout the year.
Typically, rental property expenses account for at least 35% of the property’s gross operating income, but this percentage can vary. To get a more accurate estimate, consult with other property owners in your area and conduct thorough research.
Here are 11 common rental property expenses you should be familiar with to help manage your property effectively.
1. Repairs and maintenance
It’s almost inevitable that something in your rental property will need repairs during the year. Since many repairs come unexpectedly, budgeting for them can be challenging. However, regular maintenance—like seasonal HVAC checks and routine landscaping—can keep the property in excellent condition and help prevent costly future repairs.
A common rule of thumb is to set aside at least 1% of the property’s value annually for repairs and maintenance. However, costs often depend on the age and condition of the home.
As the property owner, you’re generally responsible for repairs, but if you expect tenants to handle certain tasks, such as lawn care, be sure to outline these responsibilities clearly in the lease agreement.
2. Insurance
Insurance is a key expense for rental property owners. Landlord insurance policies typically cover liability, personal property, and dwelling protection. These policies usually cost about 25% more than standard homeowners insurance, which averages $2,285 per year, according to Insurance.com. If you have a mortgage, the insurance premium is often included in your monthly loan payment.
Depending on the property's location, you may also need additional coverage, such as flood or earthquake insurance. To ensure you have the right protection, consult with your insurance provider to determine the type and cost of coverage necessary for your rental property.
3. Property taxes
3. Budgeting
Accurately estimating and budgeting for expenses is essential when managing a rental property. A profit and loss statement is one of the best tools for this. It tracks your income, expenses, and profit, providing a clear picture of your monthly and annual net profits to help you evaluate your return on investment.
The good news is that many rental property expenses are tax-deductible, so it’s important to keep detailed records of your spending throughout the year.
Rental property expenses typically account for at least 35% of the property’s gross operating income, though this can vary. To better understand your potential costs, consult with other property owners in your area and conduct thorough research.
Here are 11 common rental property expenses every property owner should be familiar with.
4. Marketing and advertising
Advertising your property is essential for finding qualified tenants, and it’s another expense to factor into your rental property budget. This might include placing ads in local newspapers, running targeted campaigns on platforms like Facebook, or investing in professional photography to showcase the home effectively. These marketing efforts can help attract the right renters and minimize vacancy time.
5. Property management
Property managers take care of the daily responsibilities of managing a rental property, including advertising, processing tenant applications, screening renters, collecting rent, and addressing repairs and complaints. They’re also skilled in drafting leases and staying up-to-date on local landlord-tenant laws. While hiring a property manager typically costs around 10% of the monthly rent, it can save you significant time and effort, making it a worthwhile investment for many property owners.
6. Tenant Application Fees
Screening applicants is a key step in selecting the right tenant for your rental. This process often includes running credit and criminal background checks. If you handle this yourself, credit checks through agencies like Equifax, Experian, or TransUnion typically cost around $35 per applicant, and criminal background checks are about the same. If you hire a property manager, they will take care of the screening as part of their service, included in their monthly fee.
7. Homeowners association fees
If your rental property is part of a homeowners association (HOA), you’ll need to budget for monthly HOA fees. These fees typically range from $200 to $300 per month but can go as high as $1,000, depending on the amenities provided, such as pools or fitness centers, and the services covered, like landscaping or maintenance. To determine the exact cost, contact your local HOA for details.
8. Licenses and permits
Rental property regulations vary by state and municipality, and some areas may require a license or permit to operate a rental. To ensure compliance, research the requirements for your location or consult with a local attorney for guidance.
9. Legal and other professional fees
Owning a rental property can be complex, especially when you’re starting out. From navigating landlord-tenant laws to handling additional tax forms and seeking financial or legal advice, you may find it necessary to hire a professional. While this adds to your rental property expenses, it’s a worthwhile investment to ensure legal compliance and financial accuracy.
Hiring an attorney is a smart move to help you understand local laws governing rental properties, which often include detailed requirements that can be challenging to interpret on your own. Additionally, working with a certified public accountant (CPA) can simplify tax filing and provide guidance on whether forming a business entity or operating as an individual is the best option for managing your rental property.
10. Utilities
Tenants are typically responsible for covering their own utility bills. However, you might choose to offer perks like covering the water bill or including Wi-Fi in the rent, which could add value for tenants. These expenses usually average a few hundred dollars per month. Additionally, remember that you’ll be responsible for all utilities during periods when the property is vacant.
