Expenses you May not Expect as a Landlord
It can be quite tempting to become a landlord, especially when you haven't
sold your house or you are interested in investing in real estate. Unfortunately, many
people are caught by surprise by unexpected expenses when they decide to become a landlord.
Before you take the next step of renting out property, consider the four hidden landlord
expenses that you might not expect.
Increased insurance expenses are one item that many people do not expect.
Homeowners who are not able to sell their homes should be prepared for the fact that their
status will change when they rent out their homes. Instead of being the primary occupant,
they will become an investor. Consequently, it will cost more to insurance the home. How
much more can you expect to pay? In some cases, the premium could be as much as 25% higher
when you rent out your house than when you occupy it.
It is true that the rental payments from the tenants could help to cover
such increased expenses, but at the same time you should not always count on that being
the case. Generally, rental homes have tenants for less than twelve months out of the year.
This is because it takes time to locate a renter and renters often leave before their leases
are actually up.
Another expense you should be prepared for when you rent out of your home
relates to the costs associated with legal expenses. It is imperative that you make a point
to budget money regularly for obtaining legal advice. As a landlord, you must make certain
you understand your rights and have a professional draft your rental agreements. Some lawyers
will charge around $200 for a flat rate for such services; although other attorneys may charge
by the hour. In the event you need to evict a tenant or if you should have some other type of
problem, you should also be prepared to pay for additional assistance and legal work. Along with
legal expenses, as a landlord you should be prepared to pay for any administrative costs that
may be associated with running the credit histories for potential tenants, interviewing them
and checking references.
A property management company can assist you with handling such tasks, but you
will pay a fee for their assistance. For the most part, you should expect to pay around 10% for
every month of rent when you hire a property management company.
Other administrative costs you should be prepared for include those associated
with making certain your property meets code. In some municipalities and cities, owners are required
to register their rental properties. Inspectors will be sent to make certain the properties meet
code. If a defect is found, you will be required to correct the problems. In other cities, new
landlords are requested to attend training classes that cover such subjects as property management
best practices, how to find good tenants, etc. Such classes can last all day. An increasing number
of cities are now offering such classes because of the increasing numbers of what are referred to
as casual landlords. New, part-time landlords may not have a solid understanding of the legal
regulations that may be involved in owning and operating rental property. The fees for such
administrative costs can quickly add up.
In order to attract good tenants, you should also be prepared for the fact that
you may need to spend money on making the property attractive. The costs for cleaning and caring
for the property and for painting, carpeting and landscaping can add up to $1,000 or more. Along
with making the property attractive, there may also be fees associated with paying for professional
services to handle maintenance issues. The fees for paying professional electricians, plumbers and
carpenters can be expensive.
While you may be entitled to tax breaks as a homeowner; that is not the case when
you are a landlord. When renting out property, you should be prepared for possibly paying higher
taxes on your property. If you move out of a property, but you continue to own it and rent it out
you will likely need to give up your homestead exemption. Depending on the tax rate where you live,
this can result in significantly higher taxes.
Renting out your property can be a good way to generate extra income, especially
when you can't sell your home, but make sure you are prepared for the extra landlord expenses
before you make a final decision.