Owning rental properties is often a great way to gain passive income for retirement or some extra income on the side. You have likely weighed the pros and cons of purchasing a rental property and are confident in your ability to both effectively manage and profit from it.
However, whether you are looking to purchase a fourplex, duplex, apartment building or more, you should be aware of the often-overlooked costs of rental properties. Prospective Florida buyers should consider the following hidden costs before making the leap to purchase a property:
Insurance costs and other fees
Purchasing a rental property can be accompanied by an array of fees, costs, taxes and more. Prepare for expenses like:
- Insurance premiums protecting against the risk of significant damage
- Potentially rising property taxes, especially for investment properties
- The costs of utilities, including whether you plan to include these in rent
- Paying for services to market to prospective tenants and accept applications
- The possibility of paying homeowners association (HOA) fees
Work with an attorney, a financial and/or tax professional and more to understand the expenses you can anticipate.
Bad tenants and the risks of vacancies
Tenants are the key to profiting from rental properties. However, you want a good tenant who will pay rent on time, not cause additional costs and refrain from breaking their lease early. The costs of eviction and disputes with tenants can be steep. Additionally, while a security deposit collected initially may guard against some damage, repairing serious damage caused by tenants to units can fall mostly on you.
Vacancies also pose a significant risk. Without a tenant, you bear responsibility for all costs associated with the unit. Be prepared for the possibility of going months without a tenant in all units but strive to keep these periods as brief as possible.
Sudden maintenance issues
Maintenance issues like a broken air conditioner, flooding, plumbing problems, a storm-battered roof and more can cause an unexpected hit to your finances. Additionally, costs spent to clean up after tenants and attract new tenants, like cleaning units, painting, refreshing landscaping and more, can add up quickly.
Purchasing rental properties is an investment, yet one that should come with careful consideration and discussions with the right professionals. Understanding the hidden costs you may face as a property owner, landlord or both can help you be prepared for what could come your way financially.