If you’re new to the world of being a landlord, there’s likely a lot of things you have yet to discover. On the surface, purchasing a home or apartment complex can seem like an awesome investment. After all, the cost of the mortgage pales in comparison to potential rental income if you find the right deal. In reality, there are many hidden expenses involved in being a landlord.
Not sure what those obligations are? We’ve got you covered. Read on to learn about the true costs of owning rental property!
Buying the Property
This is the first and most obvious expense. Before you buy or build a big apartment complex, ask yourself how much time and money you want to invest in being a landlord.
If you’re just starting out, consider purchasing smaller properties, such as single family homes or a four-unit apartment building. And before you even get to this step, consider all of the following expenses and see what size property fits within your budget.
Don’t be afraid to ask for quotes to get an idea of how much each of the following items will cost you!
Making Sure the Property Is Up To Code
A pre-purchase inspection will likely cover a lot of things that would be code violations, but is it up to code for a rental property?
Many cities and states have a specific housing code that sets the minimum conditions required for a house or apartment to be habitable. What happens if you don’t bring the property up to code and a renter moves in and subsequently discovers a violation? In many states, the renter can withhold rent until the violation is repaired or they can break the lease and move out.
Many cities even require regular inspections of the policy to ensure that it is up to code. You must make sure that the rental property is up to code as long as you choose to rent it out.
Everyone knows that you need to have insurance as a homeowner, but it is also required if you’re a landlord. In fact, you need insurance that covers damage to the property as well as liability insurance.
Landlord insurance protects you in the event of damage caused by accidents, fire, or even severe weather. It also protects you in the event a person is injured on your property and files a claim against you.
Homeowner’s Association Costs
Thankfully this is not necessarily going to be an expense everyone incurs. If you are considering purchasing rental property in areas with single family homes or condos, then this is a potential additional expense.
Property in certain areas requires the purchaser to agree to comply with specific regulations about use and appearance. These are homeowner’s associations, and in return, they typically cover amenities and services such as landscaping.
If you are considering purchasing property in an area with an HOA, you must first determine whether the HOA permits the property to be used as a rental. You also have to make sure that any tenant that moves in is apprised of the rules and sticks with them. Any violations of HOA rules could result in fines and costly repairs.
Many landlords cover the cost of certain utilities for their tenants. As a landlord, you have to decide which, if any, utilities you will cover, and how much those will cost.
For example, a lot of landlords cover the cost of trash removal, gas, and water. This just leaves the electricity for the tenant to cover. This could work well for you, but if you live in places with chronic drought and water restrictions, it may be best to let the tenant cover the water themselves.
Unless you plan for the unit to not have utilities when it’s vacant, you also have to be prepared to cover those costs when a tenant isn’t living in the unit or if the tenant fails to switch the utilities into their name.
Fair Housing Education
Are you fully aware of all the laws pertaining to renting out an apartment or house? Federally, there’s the Fair Housing Act, and each state will generally have some kind of landlord-tenant law on the books. A lot of cities have their own requirements, too.
If you’re caught in violation of the Fair Housing Act, you could be in big, big trouble. Be sure to take the time to educate yourself on all the legal requirements of being a landlord and renting out a property. There are many online training courses that are well worth the money.
Listing It for Rent
Listing and marketing your property for rent is a very important step. You want to make sure that your listing gets as much exposure as possible.
There are two ways you can go with this step: free listings and paid listings.
You can list your rental for free on sites like Craigslist or Zillow. These sites are great resources for landlords who are trying to save money on administrative fees like this. Keep in mind that a lot of landlords utilize these services. Make your listing stand out with things such as photos and detailed information. Be aware that you may have to post multiple times to keep your listing from getting buried.
There are also paid listing sites. These sites are great because potential renters trust them more, and some have a verification process that vets your rental. Each property has a single listing, so you don’t have to worry about it getting buried. rentbits is a good example of a paid rental site to generate rental leads for your properties.
Don’t forget to make sure that your listing is compliant with all federal, state, and local laws!
Hiring a Property Management Company
Want to be a landlord but don’t want to deal with all the administrative stuff? Then a property management company is a good option for you.
Property management companies are great because they’re familiar with the market and can help you set an optimal rental amount. They also handle all the administrative aspects of being a landlord. They’re trained in all housing laws, so you’re protected from potential violations.
In addition to all that, you’ll have more time on your hands to live your life.
Property management companies generally accept a specific percentage of the rental income you earn as payment for their services. While this may seem costly, it often saves you money in the long run.
As a landlord, you will be in charge of covering all maintenance expenses, with the exception of those incurred by the tenant at move-out.
For example, if the stove goes out, you have to pay for that repair. You also have to be prepared to cover emergency services. Let’s say you rent someone a one bedroom, one bath apartment, and their toilet breaks. You have to fix the toilet immediately. But in apartments with more than one bathroom, the repair is less urgent.
Failure to make emergency repairs could be a violation of the housing code and could result in costly fines.
The rental market has its ups and downs, just like the housing market in general. You have to be prepared for your property to sit vacant for a period of time.
If you’re having issues getting your property rented out, try staging it to make it look more desirable. Or reevaluate your rental price, it may be too high for the market you’re in.
No one likes to think about legal costs, but they’re a reality for a lot of landlords. For most landlords, the reason they need a lawyer is that they have a tenant that needs to be evicted because they haven’t paid their rent or is failing to abide by their lease.
Eviction is expensive and can be a long and drawn out process. It starts with serving a “pay or quit” or “cure or quit” notice on the tenant and giving them a time frame in which to pay past due money or fix an issue. If you are unfamiliar with the process in your state, be sure to get a lawyer to guide you through it so it doesn’t take longer or cost more than necessary.
Lawyers can also serve as collection agents when a tenant moves out and doesn’t pay for repairs or has past due payments.
What do people like talking about less than getting a lawyer? Probably taxes. Unfortunately, taxes are a reality when you’re a landlord.
People who own property that they rent out pay more taxes than people who live in the property they own. For example, many states have a homestead exemption that reduces the tax liability for people who live in the homes they own. Landlords will not get that exemption.
If you are concerned about your tax liability, hire an accountant or attorney to help you understand what it will be.
So, Is Being a Landlord Worth It?
Are you still asking yourself “is being landlord worth it?” Being a landlord is not a simple task, and it’s certainly not inexpensive. Regardless, if you start with a complete understanding of all the expenses and necessities involved in being a landlord, you have the potential to be very successful.