What Expenses Should I Budget for as a Rental Property Owner?
The cost of owning a rental property goes beyond the mortgage payment. Understanding the expenses that may come with ownership can help you evaluate a property more realistically before you buy.
When considering a rental property, it's easy to focus on two numbers: the purchase price and the potential rent.
But those numbers don't tell the whole story.
Rental properties can come with ongoing expenses, occasional large expenses, and costs that vary considerably from one property to another. Looking at the bigger picture can help you decide whether a particular property fits your investment goals.
Quick Takeaways
Your mortgage payment is only one potential expense.
Taxes, insurance, maintenance, and association fees can significantly affect ownership costs.
Some expenses occur every month, while others are occasional or unexpected.
Rental properties may have periods without rental income.
Short-term and long-term rentals can have very different expenses.
Build your budget using information specific to the property you're considering.
What Are the Regular Expenses?
Some costs may occur monthly, quarterly, or annually and can be easier to anticipate.
Depending on the property, these may include:
Mortgage payment.
Property taxes.
Property insurance.
HOA or condominium association fees.
Property management fees.
Utilities paid by the owner.
Lawn or landscaping services.
Pest control.
Routine maintenance.
Not every property will have all of these expenses, which is why it's important to look at the costs associated with the specific property you're considering.
Don't Forget Repairs and Maintenance
Even a property that's in great condition will need maintenance over time.
You may eventually encounter expenses related to:
HVAC systems.
Appliances.
Plumbing.
Electrical systems.
Roofing.
Exterior maintenance.
Interior repairs.
General wear and tear.
Some expenses can be planned for, while others may happen unexpectedly.
Having funds available for repairs and maintenance can help prevent one unexpected expense from disrupting your overall plans.
What About Vacancies?
A rental property may not generate income every single month.
For a long-term rental, there may be time between tenants. A short-term rental may have slower periods or unbooked dates.
When evaluating a property, it's worth considering how you would handle the property's expenses during periods when rental income is reduced or unavailable.
This can be especially important when the property's regular expenses depend heavily on rental income being received.
Are Short-Term Rental Expenses Different?
They can be.
A short-term vacation rental may have expenses that aren't typically associated with a traditional long-term rental.
Depending on the property and how it is managed, those could include:
Furnishings.
Linens and household supplies.
Cleaning and turnover.
Utilities.
Internet or cable.
Booking or management fees.
More frequent maintenance.
Replacement of household items.
If you're comparing a short-term rental with a long-term rental, make sure you're comparing the expenses as well as the potential income.
What About Larger or Unexpected Expenses?
Not every expense fits neatly into a monthly budget.
A property owner may eventually face a larger repair or replacement. Condo and HOA properties may also have special assessments in addition to regular association dues.
Before purchasing, consider the age and condition of major components of the property and review available association information when applicable.
A home inspection can also provide valuable information about the property's condition before you buy.
How Do I Build a Realistic Budget?
Start with expenses you can reasonably identify for the particular property.
Gather information about:
Property taxes.
Insurance.
Association fees.
Estimated financing costs.
Property management, if applicable.
Utilities the owner will pay.
Known maintenance needs.
Other property-specific expenses.
Then consider costs that aren't as predictable, including repairs and periods without rental income.
The goal isn't to predict every dollar you'll ever spend. It's to avoid evaluating a property based only on the expenses that are easiest to see.
The Bottom Line
If you only remember one thing from this article, let it be this:
Don't compare potential rent only to the mortgage payment.
Look at the broader cost of owning and operating the property. A more complete picture of the expenses can help you evaluate whether the property makes sense for your goals.
From Dana & John
When we're looking at potential investment properties with a buyer, we think it's important to look beyond the purchase price.
Two properties with similar prices can have very different ownership costs because of insurance, association fees, maintenance needs, rental restrictions, and other factors.
We'll help you gather the property information available to us so you can look at the bigger picture before deciding which property may be the better fit.
Continue Learning
Understanding the expenses is only part of evaluating an investment property. These guides can help you keep going.
→ How Do I Estimate Cash Flow on an Investment Property?
→ How Do I Finance an Investment Property?
→ What Tax Questions Should I Discuss With My CPA Before Buying an Investment
→ Should I Buy a Long-Term Rental or a Short-Term Vacation Rental?
Have Questions?
If you're considering an investment property along Alabama's Gulf Coast, we're happy to help you gather information about the properties you're considering and explore options that fit your goals.
Dana & John Martin – Team Martin
Waters Edge Realty
318-504-9925 | 504-450-2714
ALGulfCoastAgents@gmail.com
