When owning rental property
Owning a rental is similar to owning a pet. While you don’t need to house train your rental property, there are several hidden costs with owning a pet and with owning real estate. Here are 6 main fees associated with owning real estate: mortgage payments, property management fees, homeowner’s association dues, property insurance, property taxes and repairs.
Mortgage payments are the least hidden of the 6 fees, because most people count on these. Payment amount varies depending which type of loan the borrower chooses. Be wary of adjustable rate loans; 30-year fixed loans are great for investors planning to hold their property for a long period of time.
However, not everyone plans on property management fees. Of course, only those investors who choose to hire a property manager must factor in such fees. I always recommend working with a property manager because their services are indispensable–they assist with everything from finding a reliable renter to managing the property. Such professionals charges by the percentage, usually somewhere around 10%, of the annual renting price.
Homeowner’s association dues are also fees that some will not have to consider because not every property is in a neighborhoods with such dues. Those that do live in areas with a homeowner’s association may experience high dues or relatively low dues. The payment amount should reflect the services rendered. For example, a neighborhood with high dues might have their lawn care, cable, insurance, etc. covered. Neighborhoods with lower homeowner’s association dues may have nothing covered other than the upkeep of the entrance sign. It’s a trade off of sorts: higher prices also equal less work for the investor.
Property insurance covers your property in the case of a natural disaster or fire. It’s important to know what is covered by your insurance–understand both the deductibles (they may vary depending on the claim) and your liability coverage. By thoroughly understand what will be covered when filing a claim beforehand, you won’t have any unpleasant surprises later.
Real estate taxes are simply property taxes that increase as the value of your property increases. While the value of your property increases over time, so does the number of necessary repairs. It’s wise to count on a certain amount of repair, small and large, if you’re planning to hold a property for a relatively long amount of time.
Like a parent evaluating the extra costs associated with owning a pet, it’s always prudent to consider hidden fees when assessing your real estate investment.