Owning and maintaining a rental property is a great source of passive income. But you may find that your position as landlord is hardly passive. Rental properties often require regular maintenance and repairs, and you have to be willing to make the needs of your tenants a high priority. It can be a bit overwhelming… and expensive.
When first getting into this business, you may not be aware of all the little, hidden costs that come with the territory. Those little costs can add up quickly, so make sure you are aware before committing. Here’s a list of 5 hidden costs landlords tend to accrue.
- Property tax. Besides the obvious costs that come with having an extra property, sometimes rental properties incur higher tax rates than those that are owned and lived in full time. You may be eligible for a tax break because of its rental function, but calculate the cost and be prepared to pay full price before you commit to a property.
- Cleaning & maintenance. The time between tenants should be used for deep cleaning the rental space. Whether you choose to do this yourself or you hire a cleaning service, it will cost you to ensure that your next tenants begin their stay with a clean slate. Even while people are living in your space, you are responsible for consistent maintenance on utilities, appliances, and the structure itself. Make sure that tenants have a way to contact you, and make their needs your highest priority.
- Legal fees. Why would a landlord accrue legal fees? Unless you are an attorney or fairly well-versed in the law, you will likely need some legal guidance when drafting a rental contract. You must create a new contract for each tenant, as a one-size-fits-all contract may lead to disagreements or other issues.
- Insurance rates. Like property taxes, insurance rates can skyrocket when it comes to rental properties. Be sure you are prepared to take on the extra cost.
- While it would be ideal for your rental property to be occupied at all times, the reality is that there will be dry periods. You may have to go for a few months at a time without income. Save a little money on the side so that when the doldrums come along, you are not badly affected.
These are just 5 of the hidden costs that come with a position as landlord. Do your own research and plan every step of the process. When those hidden fees or necessary services come along, you will be prepared to meet them head on.