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In a good rental market, as a landlord you can reasonably expect to make money. But the end goal is not just collecting the rent and covering the cost of your real estate investment – you want to make a profit. Ensuring your rental property is successful comes down to numerous factors. These include the location, condition and type of property, employing the services of a reputable and professional property management company, and making sure you’re operating with a realistic budget to achieve your financial goals. The latter is one of the most crucial aspects to keep abreast of – because if you don’t know your outgoings in relation to your incomings, you won’t be getting a true picture of your real estate investment. Cash flow is king, and a good property manager will set a budget so you can see your situation at a glance, and don’t get scuppered by unexpected costs. If you’re a new landlord, though, it pays to be aware of some of the “hidden” costs you’ll need to offset against the rent before you start making a profit. Insurance Getting appropriate and adequate landlord insurance is not something to be taken lightly. If you’re not protected against every eventuality and make sure you mitigate against liabilities related to your real estate investment, it can spell disaster. You need to look closely at the kind and amount of coverage you need (your property manager will be able to advise on this), and read any fine print before you commit to a policy. Some of the items you should consider in your policy coverage are: building damage (not caused by tenant); rental income protection; damages caused by tenants; legal fees for injury to tenants; liability for tenants’ possessions. Vacancies No landlord wants an empty property, but it happens – and it’s essential to have contingency in the budget for unexpected vacancies. If your real estate investment is sitting empty for several weeks or longer in between tenants, your income effectively dries up – but your ongoing costs (like your mortgage) still need to be paid. Even if the gap between tenants is just a week or so, it can affect your bottom line. Repairs and Maintenance It’s important to keep your asset in good condition – and you need to spend money to make money, as the saying goes. Along with regular maintenance, like painting and garden care, there will be times when you need to upgrade appliances, make repairs to HVAC (heating, ventilation and air-conditioning), and of course any emergency repairs to plumbing and electricals. Your responsibility doesn’t end with collecting the rent, so it’s essential you build contingency into the budget in the event of any of these issues. Taxes The dreaded “T” word is not something any of us want to think about, but it’s vital you understand the tax implications of having a real estate investment property. The tax rules vary from state to state, so you’ll need to get professional advice on both the benefits you can claim against, and also the effect this kind of income will have on your personal tax situation. It's very important to note that the abovementioned things are just some that new investors might not consider and not a comprehensive list of the costs incurred as a landlord. That’s something you should discuss in depth with your property manager and, together, set some realistic financial goals and a non-negotiable budget to reduce the risk of encountering any unexpected costs that eat into your profits. Author Plate Danny Torres is from Torres Turn Key, a property management company in Rochester NY with more than ten years’ experience dealing with both domestic and international clients for real estate investment. Providing a holistic service for both commercial and residential properties, the company brings together a host of experience and specialist knowledge to build long-term relationships and create maximum value and benefit for their customers.
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