If you are renting out a home, you have expenses beyond what you pay in rent. As a landlord you are legally obligated to ensure the home is in livable condition and will be responsible for maintaining the home. Being a landlord also creates expenses that you wouldn’t pay for if you lived in the house by yourself. Understanding these expenses will help you identify properties that are suitable for investment and make accurate profit and loss forecasts.
Not all tenants will treat your property as though it was their own. However, you will still have to pay for property damage to make the house attractive for the next tenant. Security deposits can be used to pay for property damage beyond wear and tear, but in most states the security deposit cannot exceed one month’s rent and if the damage done to the property is more than that, you will have to pay for it out of pocket.
If the furnace gives out or the roof has a leak, the landlord is legally obligated to fix these problems as soon as possible. The amount of money that should be set aside for these repairs depends on the condition of the home. In his guide to creating positive property cash flow, real estate author John T. Reed suggests forecasting when the roof, furnace, and plumbing and electrical systems will need to be replaced and then build that into your yearly budget.
If you do not want to handle the day-to-day responsibilities of dealing with tenants, you will need to hire a property manager to do it for you. The Shimberg Center for Affordable Housing warns landlords that finding the right management staff is one of the most important decisions you will make. Property management companies usually charge their customers a flat monthly fee, or a percentage of rent collected. Their services can vary from specific services such as rent collection and property upkeep to end-to-end management solutions.
Most tenants eventually leave their rental unit. However, you will still need to make your rent payments if the home is empty. The vacancy rate will depend on the amount you charge for rent, the desirability of the neighborhood, and your ability as a landlord to market your property. In his book "Landlording," Leigh Robinson advises landlords to budget one month's rent to pay for an empty unit.
Jonathan Bechtel is a former banker and start-up founder who has written since 2008 on the topics of banking, finance and business strategy. His advice and tips have been featured on Fox Business, Yahoo! Finance and AOL money. Jonathan holds a Bachelor of Science in nutrition from the Ohio State University.