| All real estate investors compare rental income to | | | | adequate insurance coverage. This is a cost that |
| their monthly mortgage payment to determine if | | | | you will pay monthly as part of the escrow |
| a rental property will cash flow. Even though this | | | | account on your mortgage. This monthly cost |
| is a good barometer to use to determine | | | | needs to be considered when calculating your |
| whether or not to purchase a property, it should | | | | expenses. |
| not be the only consideration. There are 6 other | | | | Vacancies |
| critical costs that real estate investors should | | | | Rental properties will never be 100% occupied |
| consider before purchasing any investment rental | | | | 100% of the time. During the time frame that the |
| property. Ignoring these 6 costs in your evaluation | | | | property is vacant, you will have expenses that |
| of a property can cost you thousands of dollars | | | | will need to be paid without any corresponding |
| down the road. | | | | rental income to offset it. Every rental market |
| Deferred Maintenance | | | | has statistics showing the average vacancy in |
| The seller of a property may have failed to | | | | that area. If the vacancy average is 15%, |
| maintain a property. When you purchase the | | | | landlords need to calculate rental income based on |
| property you will be saddled with the cost of | | | | 15% loss of rental income during the year. |
| making these repairs. The major items in a rental | | | | Tenant Turnover |
| property have a defined life expectancy. A roof is | | | | When a tenant moves out, the landlord needs to |
| expected to last 20 years. If the roof on your | | | | rehab the property to get it ready to be rented |
| property is 18 years old, you need to budget for | | | | again. The cost of paint and carpet can easily |
| the cost of replacing the roof. | | | | exceed $1,000. This does not include the cost of |
| Taxes | | | | fixing any tenant caused damages to the |
| The amount of property taxes paid last year on | | | | property. |
| a property may not be the same amount that | | | | Utilities |
| you pay the year you purchase the property. | | | | Most landlords fail to budget for the monthly cost |
| The assessed value of the property could have | | | | of utilities that they are required to pay. Utilities |
| increased which will increase the amount of taxes | | | | can include the cost of water, sewer, security |
| due. Additionally the county tax assessors' office | | | | lights, garbage, and landscaping. These costs can |
| can increase the millage rate that is used to | | | | easily exceed several hundred dollars a month. |
| calculate the taxes owed. If the property was | | | | The next time real estate investors evaluate a |
| previously owner occupied with homestead | | | | potential deal, make sure you account for these 6 |
| exemption and you purchase it as an investment | | | | hidden costs to determine if the property will cash |
| property, your taxes will be greater due to the | | | | flow or not. If you do not budget adequately for |
| lost of the homestead exemption. | | | | these costs, you may wake up one day and need |
| Insurance | | | | to pay for a very expensive repair that can cost |
| Once you have purchase rental property, you | | | | thousands of dollars. |
| want to protect your new investment by having | | | | |