Renting out properties can be a lucrative venture if you play your cards right. However, far too many people underestimate the running costs of this type of business. It’s definitely possible to come out on top, but it takes some preparation. Otherwise, you risk running into situations that will cost you more than what you actually make from collecting rent. When it comes to maintenance and the administrative/legal side of things, there are some expenses you really shouldn’t underestimate.
Maintenance
Everyone knows that rental properties require maintenance. But many inexperienced landlords tend to underestimate just how much they have to spend on that in the long term. For some types of properties in certain regions, you can expect to pay as much as 50% of the rent you’re collecting just on maintenance alone. This is a very rough estimate, of course, but it’s not rare to see these figures in situations like properties that require frequent roof repairs and other expensive maintenance. When you subtract taxes as well, you really don’t end up with a lot.
Wear and Tear
Bear in mind that tenants will never look after a property as well as an owner. They are not invested in the same way as a landlord, and you can expect a lot more wear and tear when you rent out a property. Things like flooring, kitchen cabinets, and furniture (if the property is rented out furnished) will all be subject to a lot more wear and tear. Make sure you allocate money in your budget for replacing fixtures and fittings more often than you would in your own home.
Insurance
If you’re a landlord, you will need insurance as well. Take the time to compare landlord insurance deals online very carefully before committing to one. The market varies a lot in this regard, and you’ll want to carefully check what each provider has to offer. Some insurance packages will be great for your specific situation, while others may be more suitable for people in different circumstances.
Consult an expert to be sure that you’re making the right choice as well. You might be surprised how much there is to compare on this market, and you’re going to need enough time to ensure that you’re getting the best deal. This is not something you can change easily or cheaply afterwards, so it’s important to get it right the first time.
Consider whether you want basic insurance coverage or you want add-ons like rent protection. Always read the small print of a policy to be sure what is covered before you buy it.
Administrative
There are various administrative costs associated with renting out a property too. Finding new tenants can get expensive if you have to do it often, and it can also eat into your schedule. You might also want to hire a property manager to handle things if you’re renting out more than one apartment or house.
And then there are all the smaller details like legal issues, taxes, and other administrative expenses that can quickly add up. Set aside some money for those things and try to save more than what you estimate you’re going to need in the long run. You’ll be thanking yourself later when you hit an unexpected large expense that you would have otherwise not been prepared for.
Many smaller or inexperienced landlords opt to pay a letting agent to manage their rental properties. While this will save you a lot of time and energy, there is a cost involved. Letting agents typically charge a percentage of the annual rental income, which can be anything from 10 percent to 25 percent, depending on the area.
You can save money by shopping around and talking to different agents to see what service they offer.
Always work with an accountant when you have rental properties. There are many things you can claim tax relief for as a landlord, some of which you may not be aware of. A good accountant will provide excellent advice and make sure your rental portfolio is as tax efficient as it can possibly be. They will be able to advise you if moving your portfolio into a limited company is going to save money on tax, among other things.
If you set everything up correctly and don’t underestimate the costs associated with being a landlord, it’s not hard to stay afloat and have some regular profit trickling in. But it’s going to take effort on your part, and it won’t be the kind of passive income that many people see it as. The reality is that being a landlord requires a good deal of effort and you should be prepared to go all the way if you want to make a good impression on your tenants.
