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12 Rental Property Expenses You’re Overlooking

rental property

Buying an investment property is a great way to create a stream of passive income. But owning and maintaining a property for rent comes with several costs that cut into your profit. Below, we highlight and explain the rental property expenses you might be overlooking.

We’ll cover:

12 common rental property expenses

Have you thought about the following rental income expenses? If not, this list can serve as a reference for the costs you’ll need to factor in as you settle into your role as a landlord.

1. Tenant screening

You’ll want to vet any potential renters who are interested in occupying your property. Tenant screenings typically involve a credit check and verification of employment and income, but you may also want to conduct a background check. There are several third-party companies that offer tenant screening services, including credit reporting bureaus Experian and TransUnion. Depending on which service you use, you could pay between $7 and $40 per screening.

2. Utilities

As a homeowner, your monthly home-related expenses go beyond just your mortgage payment. Be sure to budget for electricity, gas (if applicable), water, sewer and trash bills. The average amount spent annually on household utilities is more than $2,000, according to EnergyStar.gov.

Tenants typically pay for electricity, gas and internet services, while landlords typically cover sewer and trash costs. However, you can pass on or assume any of these household costs, as long as you make sure to detail the terms clearly in your lease agreement.

3. Maintenance

It’s important to maintain your rental property, which might include lawn care and pest control services. You’ll also want to budget for cleaning services to make sure the property is in great shape before a new tenant moves in.

On average, lawn care and pest control services can cost about $130 and $170 per service visit, respectively, according to HomeAdvisor. A cleaning service could cost as much as $180 per two-hour visit.

4. Repairs and upgrades

Appliances break down, and some of your property’s features can eventually face significant wear and tear. Set aside funds to cover any necessary home repairs or upgrades that may come up as the years go by. Expenses for personal property rental (e.g. when you provide furniture to your tenants) can and do add up over time.

5. Property taxes

You’ll pay property taxes on your rental property for as long as you own it. Depending on which state your property is in, you might expect to pay about $700 to more than $8,000, according to an analysis from the National Association of Home Builders. These can add up and contribute to your rental income expenses.

Your property tax bill is equal to a percentage of your property’s taxable value, and the rate depends on the city and county where your rental property is located. The average property tax bill is nearly $3,500, which translates to a 1.16% tax rate, according to property research firm ATTOM Data Solutions.

6. Insurance

You’ll need a landlord insurance policy for your rental property — standard homeowners insurance coverage won’t suffice.

A landlord policy typically covers damage to a property’s structure and any personal property you allow tenants to use, such as appliances and lawnmowers, according to the Insurance Information Institute. The policy also covers the legal and medical expenses of a tenant or guest who’s injured on the property and may also provide loss of rental income coverage if the property can’t be rented while it’s being repaired.

Landlord insurance premiums cost about 25% more than a standard homeowners insurance policy. The policy won’t cover your tenants’ personal belongings — they’ll need to purchase a separate renters insurance policy to insure those items.

7. Future vacancies

The bills won’t stop coming just because you no longer have a tenant in place. Be sure your reserves account for periods of vacancy when you’ll be solely responsible for covering the bills that come due during that time, including your mortgage payment and utilities. Make sure to account for rental income expenses even when you don’t have money flowing in.

8. Legal fees

While legal fees may not fall in the recurring costs category, you’ll want to make sure you set aside funds to consult a real estate attorney should any tenant-related issues arise. Lawyer fees could run you $200 to $300 or more per hour.

9. Travel

Whether you’re burning gas or buying airfare, don’t forget to budget for the money you’ll spend traveling to and from your rental property.

10. HOA fees

If your rental property belongs to a community with a homeowners association (HOA), you’ll be charged HOA fees, which can cost $200 to $300 per month.

HOA fees typically cover maintenance of the community’s common areas and may include landscaping services and other amenities.

11. Property management fees

If you’d rather not concern yourself as much with managing a rental property, you could always outsource the work involved to a property management firm.

Rental property management expenses can range from 8% to 12% of your monthly rental rate. Property managers can handle everything from screening tenants to maintaining the property.

12. Emergencies

You can almost always expect that unexpected expenses will pop up. Be sure you’re prepared to cover these costs with money from your emergency fund instead of relying on credit cards or loans.

Can you deduct rental property expenses?

Are there tax-deductible expenses for a rental property? The short answer is yes, but not every cost you’ll pay has a tax benefit.

Which rental property expenses are deductible?
  • Advertising
  • Depreciation
  • Insurance
  • Legal Fees
  • Maintenance
  • Mortgage interest
  • Property management fees
  • Property taxes
  • Repairs
  • Travel
  • Utilities
  • Vacancies

The interest portion of your monthly mortgage payment is deductible, as are your property taxes. Maintenance, repairs and utilities are deductible, but not improvements made to “better, restore or change the property to a different use,” according to the IRS.

You can also deduct property insurance premiums, advertising and travel expenses. Depreciation — a calculation of the loss in your rental property’s value — is also deductible, but not all at once. You deduct a portion of the home’s value over the life of the property, which typically ends when you sell it or convert it to personal use.

The bottom line

Owning an investment property and earning a consistent cash flow can be a rewarding endeavor, but it’s important to consider the many expenses attached to managing this type of property.

Before you dive into a landlord role, take the time to fully understand each of the operating costs you’ll be responsible for covering and how they’ll impact your income.

 

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