As a landlord, you are responsible for a variety of costs associated with your rental property. While some of these costs are obvious, others can be more difficult to anticipate. It’s critical to be aware of the potential hidden costs that could come up when renting out your property so you’re prepared to handle them. Here are a few things to watch out for:
Upkeep and repairs
One of the biggest hidden costs is repairs and maintenance. Even if your tenants are taking good care of the property, there is always the potential of something breaking or requiring a repair. As a landlord, you’re responsible for keeping your rental property in good condition, which means repairs and maintenance as needed.
Legal fees
If you have to go to court for any reason, you’ll be responsible for your own legal fees. Even if you have the best intentions and are renting out your property in good faith, there is always the potential for something to go awry. If your tenant has an issue with the property or if any damages or accidents occur, you could be facing legal action. This is why it’s important to have landlord insurance, which can help protect you in case of any unexpected legal issues.
Insurance
While your tenants are responsible for their own personal belongings, you as the landlord are responsible for insuring the property itself. This is important to keep in mind in case of any accidents or damages that occur to the property.
Taxes
Depending on where your property is located, you will likely need to pay various taxes, so be sure to factor that into your budget. Income tax is the tax that you must pay on any rental income that you receive. The amount of income tax that you owe will depend on your personal tax bracket. Because you own property, you will also be required to pay property tax, which may vary depending on the value of your property and the tax rate in your area.
Cleaning
While it is the responsibility of the tenants to perform a thorough move-out cleaning, not everyone will do this to your standards. When this happens a security deposit may not be sufficient to cover the costs of additional cleaning and landlords should prepare to use additional funds to have it professionally cleaned. It is also common for landlords to hire a professional cleaning company to complete a deep clean of the property periodically between tenants to address things like vaulted ceiling, carpets, high walls, and other items difficult for tenants to address. This ensures that the property maintains its value and attracts good tenants. Landlords should always have a cleaning contingency ready when they know the tenant is preparing to vacate- just in case.
Vacancies
You may experience periods of vacancy, during which you won’t be earning any rental income. A vacancy is a normal and expected part of owning rental property, but it’s important to budget accordingly so that you’re not caught off guard when a unit does become vacant. You’ll need to continue to pay the mortgage, property taxes, insurance, and other associated costs. Be sure to factor these costs into your vacancy budget so that you don’t come up short. A good rule of thumb is to budget for at least one month of vacancy loss for every year you own the property.
Renting out your property can be a great way to earn extra income, but there are some hidden costs that you should be aware of before you start. By being familiar with these costs, you can be better prepared financially when renting out your property and avoid any surprises down the road. Want to learn more? Contact GIL Property Management today.
