Over 1/3 of homes in the United States for sale in the past year were purchased by people who planned on flipping them, living in them part-time, or choosing to rent them out. There are many small investors who see becoming a landlord as a great opportunity to make a living by investing in real estate.
While there are numerous financial benefits that you can gain from renting out a property, it’s vital that you’re aware of the costs associated with being a landlord. To ensure you’re prepared, here are 5 costs that first-time landlords must budget for.
Increased Insurance Costs
In general, rental homes will cost more to insure over a home where you are the primary resident. This is because a rental home is seen as a greater risk for damage, alongside a higher risk of liability issues for landlords. While you do have the option to use a portion of your tenants’ rent payments to reduce the cost of insurance, you should not solely depend on their money to cover your premium. When becoming a landlord, you may find your insurance premium increases from anywhere between 20-25%, so it’s important that you look at the various landlord insurance policies to help you find the best rate.
If you also have properties in Northern Ireland you will need to take local advice on the best NI landlord insurance for your your property type. Get a range of NI landlord insurance quotes from InsuranceQuotesNI and choose one that offers the best cover at a fair price.
Legal and Administrative Fees
Before renting out your property, it’s advised to engage with an attorney who can give you information on your rights and begin drafting rental agreements. No matter how careful you are, tenants can cause all sorts of problems, so having money put aside for any eventuality is key. There are several administration fees that you may need to pay for, such as checking for credit histories, references, and costs linked with interviewing potential tenants. You may want to consider property management services like Bay Property Management Group who can handle these tasks for you. This company is locally owned and is known for providing property management services and a simple, streamlined rental process for both you and the tenant.
Many municipalities and states disqualify landlords from particular tax exemptions. For instance, when switching from a primary occupant to an investor, you will forfeit the homestead tax exemption, causing you to pay more in property tax. If you have not lived in your property for at least 2 of the past 5 years and plan to sell, you will also lose out on your capital gains tax exemption.
Repair and Maintenance Costs
Before putting your property on the rental market, it’s essential that you conduct interior and exterior renovation work to make it appealing to tenants. Boosting your home’s curb appeal will attract tenants, so just like you would if you were planning to sell your property, carrying out repair and maintenance work will save you any problems further down the line.
Although it’s not necessarily classed as a financial cost, if a problem occurs in your property, you may need to spend money on getting to your tenant and dealing with their problem. Whether there’s damage, flooding, or a general inquiry, you are the one who is held responsible. If you can’t be available 24/7 for tenants, it’s important that you hire someone who can help tenants.
If you are a first-time landlord, being aware of all the costs lived above can help you budget accordingly and reduce the risk of any problems down the line.