New landlords often think they have their budget planned out and they know the cost/income of their new business. There are some expenses of which new landlords may be unaware, or that they may underestimate.
Your insurance rates will go up
Investor or landlord insurance on a property costs about 25% more than homeowner’s insurance. And you need to have appropriate insurance to cover any damages that might happen with your tenants, whether damages to your property or damages tenants blame on you or the property.
Your taxes will increase
Many towns and cities have tax breaks available for owners who live in their properties. These do not apply when you are renting out a property, so expect property taxes to go up. You’ll also probably need to pay self-employment tax on rental income. On the other hand, some expenses count as business expenses and might work for you. You will need to consult an accountant or an attorney. You will probably want to use an accountant at least when you do taxes, to be sure that you don’t fall afoul of any of the differences between personal and business taxes.
You will need a lawyer
Often, you might think you can get a book or google the answer, but that is not sufficient for many of the questions that may arise when you’re running this kind of business. You’ll want to have chosen and made arrangements with an attorney who specializes in landlord-tenant issues before you actually run into any issues; you’ll make a better choice if you’re not choosing under pressure of an unexpected situation. They can also help you plan well when you are setting up your business. You should have a lawyer chosen for writing lease agreements, helping you comply with laws as needed, knowing your rights and responsibilities as a landlord, and to help out when a difficult tenant causes problems or tries to get you into trouble.
You will need to plan for maintenance costs
There are several kinds of maintenance you’ll need to keep in mind. Between tenants, you will need to have your properties professionally cleaned, freshly painted, and complete any minor repairs that remain after the previous tenants move out. You may need to do major repairs, like replacing carpet or fixtures. If anything breaks while you have tenants, you will need to repair damages to property and broken things promptly when your tenants call. If you are not able to fix the problem, or can’t get to it right away, you will need to pay a professional to do the repairs. These are in addition to simple building upkeep; no matter what, roofs need to be repaired every so many years, wooden porches gradually wear down, and windows or siding get old and wear out. Keep these upkeep costs in mind when you’re developing your business plan.
You will have administrative costs
You will need to run background checks and credit checks on potential tenants. You will have a lot of information to keep track of – payments, late fees, costs, income, proof of compliance with regulations. This will require filing cabinets, filing materials, paper, a computer, and appropriate programming. You will need stamps, envelopes, business cards, and stationary for business purposes. You will need to keep yourself informed of any regulations to which you must comply; this might require taking classes, consulting an attorney, or buying books.
These new costs don’t make being a landlord impractical; it can be a very profitable business if you plan thoroughly. Be sure to keep all your costs in mind and budget for them when you are determining how much to charge your tenants.