In general, the costs of buying and owning investment real estate are similar to those of buying and owning a primary residence. You don't want to skimp here just because you're not planning on living in the property.
First, if your tenants are unhappy, you'll be unhappy because they'll be calling you constantly to fix things. Second, life can change at the drop of a hat. You might wind up living in this property at some point in time.
Before you buy, make sure you know about any potentially costly problems with the property -- for the sake of your tenants and your wallet. To do this, hire a professional home inspector who specializes in the type of property you're buying.
(A professional home inspector will work for a condo, a townhome, a single-family house, or even a small building with four to ten rental units. For something larger, you may want to hire a commercial building inspector or someone with experience inspecting commercial or industrial buildings.) Expect to pay at least
Keep in mind that the bigger the property, the most expensive the problems. In some cases, it's just that smaller problems are replicated over four or more units and wind up costing a lot of cash up front to fix.
In addition to spotting potentially expensive problems and factoring in any necessary adjustments before you purchase the property, you also have to figure out a budget for ongoing maintenance. Will you paint the walls each time a new tenant moves in? Will you clean the carpet? Will you polish the floors?
If the property is large enough, you may want to hire someone to be the building caretaker or manager, which is another expense. This person would ideally live on-site or in the neighborhood, so he or she can be on hand to take care of those pesky
Here is a list of potential expenses you may encounter when you buy and own rental property: Mortgage and real estate taxes; property and umbrella liability insurance premiums; homeowners association fees, co-op assessments or monthly maintenance fees; utilities; repairs to and maintenance of the exterior and interior of the property; landscaping; special taxes and fees; repairs to get the unit in rentable condition; and, the X factor.
The "X factor" is a line item in your investment property budget for the unknown -- and something always pops up. Some investors use a percentage (such as 2 percent or 5 percent of the maintenance budget) and some just add in a fixed cost (such as
As you grow and learn as a real estate investors, you'll develop your own formula for success. But you'll always have to watch your expenses. When it comes to owning investment real estate, every time you spend money, it's coming out of your own pocket, so finding better and cheaper ways to maintain your property will benefit you in the long run.
- Investment Property Costs: Add These Real Estate Expenses to Your Budget
- Don't Sign Over Title Until Your Name's Off the Mortgage
- Don't Make These Real Estate Investing Mistakes
- Don't Make These Real Estate Investing Mistakes (Part 2)
- 12 Hidden Costs of Homeownership
- Quitclaim Deed Not a Way to Get Mortgage Modification
- Nine Ways to Make Your Home More Appealing to Buyers
- Loan Modification Angst
- Obama Housing Rescue Tackles Unemployment & Underwater Loans
- How Much House Can I Afford? Calculating Home Affordability
- Home Sales Flat Before Spring Buying Season
- More Homeowners Pursue Remodeling Projects
- America's Most Underwater Housing Markets
- Energy-Efficient Updates Help Homeowners Save Cash
- Home Buying Checklist: What Savvy Home Buyers Need to Know
- Social Networking for Realtors Mortgage Lenders Buyers and Sellers
- Home Affordable Program Failing Homeowners
- Rate of Home Price Declines Slows, But More Drops May Be Ahead
- The Future of Home-Price Appreciation
- What Tanking Home Sales Mean for Economic Recovery
- Home Foreclosures Approach Peak Range
Real Estate - Investment Property Costs: Add These Real Estate Expenses to Your Budget
(c) 2010 Real Estate Matters, Ilyce Glink