Investing in rental property has become a very lucrative endeavor. More and more people are looking into a rental property to earn a passive income. Although it can certainly be very profitable, it’s important to understand some common landlord mistakes you may run into. Before you invest in a property, make sure you can still afford to make ends meet when any of the following circumstances arise.
High Vacancy Rates
A high vacancy rate can be costly for landlords. If your property is vacant, you are not generating any income. This loss of income can add up over time and potentially cost tens of thousands of dollars.
Even when a property is vacant, the landlord is still responsible for paying the expenses, such as mortgage payments, property taxes, and utilities. These costs can add up quickly and eat into the landlord’s profits or even cause them to lose money.
In addition to the financial costs, a high vacancy rate can be detrimental to a property’s value. When a property sits vacant for an extended period, it is likely to become run-down and less desirable to potential tenants. This can make it difficult to attract tenants in the future and lead to even more financial losses for the landlord.
Landlords can minimize their vacancy rate and reduce potential financial losses by making repairs, updating the property’s appearance, and offering competitive rental rates.
Maintenance and Repairs
Budget for maintenance and repair costs when considering a real estate investment. While these costs can be significant, they are necessary to keep the property in good condition and maintain its value over time.
One of the highest costs for landlords is dealing with urgent repairs like a leaky roof, a broken heating system, or a plumbing issue. Depending on the severity of the problem, these repairs can cost hundreds or even thousands of dollars.
They also need to regularly maintain their properties to prevent future problems. This can include regularly servicing heating and cooling systems, replacing old appliances, and maintaining the exterior of a property.
Landlords are also typically responsible for covering the cost of any improvements or upgrades to the property. This can include things like updating the kitchen or bathroom, adding new flooring, or repainting the walls. Over time, a property will need improvements to keep up with the market and still be a desirable place for renters to stay.
Legal Fees
Be careful of expensive legal fees. These fees can arise from a variety of situations, such as drafting and reviewing rental agreements, evicting tenants who are not paying their rent, or causing damage to the property. In some cases, landlords may need a lawyer to help them navigate complex legal issues, such as zoning laws or environmental regulations. Landlords may also need to pay legal fees if they are involved in a lawsuit with a tenant, such as a wrongful eviction suit. It is important to always budget for potential legal costs with any rental real estate investment.
Property Taxes
Property taxes are a significant expense for landlords. These are taxes levied by local governments and are based on the value of a property. They fund services such as schools, public transportation, and police and fire protection. Landlords are responsible for paying the property taxes at the time of purchase. The amount owed is determined by the assessed value of the property, which is typically lower than the market value.
Property taxes are usually paid in two installments, with the first due in the fall and the second due in the spring. If a landlord fails to pay their property taxes, they may be subject to penalties and interest charges. In some cases, the government may even place a lien on the property, making it difficult for the landlord to sell or refinance a property.
To avoid potential financial hardship, landlords should make sure they have sufficient funds budgeted to cover their property taxes. It is also a good idea to periodically review your property’s assessed value to ensure that it is accurate and not inflated. If the assessed value is too high, you may be able to appeal it and potentially lower their property tax bill.
Insurance
Landlords are required to have insurance to protect their properties and the tenants. This includes coverage for damages caused by fires, storms, and other natural disasters, as well as liability insurance to protect against lawsuits.
The cost of insurance varies depending on the type of property, its location, and the level of coverage required. For example, a landlord with a large apartment building in a high-risk area may pay thousands of dollars per year in insurance premiums. On the other hand, a landlord with a small rental property in a low-risk area may only pay a few hundred dollars per year.
Landlords may also be required to pay deductibles when making a claim. These can range from a few hundred dollars to several thousand dollars, depending on the type of claim and the policy terms. For example, if a landlord has a policy with a $1,000 deductible and a tenant causes a fire that results in $10,000 worth of damage, the landlord would be responsible for the first $1,000 of the repair costs.
When insuring your property, carefully consider your coverage options and shop around for the best rates. By working with an insurance broker or agent, you can find the right policy to meet your needs and protect your investment.
Avoid These Common Landlord Mistakes with Deca Property Management
Since 1990, Deca Property Management has been one of the highest-rated companies in the industry. With over 75 years of combined experience, our team has seen and handled it all. We can help you avoid making costly mistakes with your investment property. Deca provides thorough resident screening, extensive marketing/advertising, 24/7 maintenance, transparent accounting & financial reporting, and more. Call (314) 631-3306 or fill out the form below today to learn more about how Deca can make your investment a success.
