{"id":86816,"date":"2020-04-19T15:00:26","date_gmt":"2020-04-19T21:00:26","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=86816"},"modified":"2021-03-16T12:22:07","modified_gmt":"2021-03-16T18:22:07","slug":"hidden-rental-costs","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/hidden-rental-costs","title":{"rendered":"3 Hidden Costs That Can Tank Rental Property Profits"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Today we\u2019re talking about the top three costs of owning a rental property.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">After several years of plugging away at BiggerPockets, I have come to realize that in everything you are looking at doing, you must focus on people. This blog article won\u2019t be about the nitty-gritty stuff that could cost you money on a rental property; it\u2019s going to be about the people component.<\/span><\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/guides\/buy-and-hold-rental-property?itm_source=ibl&amp;itm_medium=blogad&amp;itm_campaign=guide\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-126305\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/11\/Buy-and-hold-Blog-Ad.jpg\" alt=\"buy and hold guide ad\" width=\"706\" height=\"125\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/11\/Buy-and-hold-Blog-Ad.jpg 706w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/11\/Buy-and-hold-Blog-Ad-300x53.jpg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/11\/Buy-and-hold-Blog-Ad-702x125.jpg 702w\" sizes=\"auto, (max-width: 706px) 100vw, 706px\" \/><\/a><\/p>\n<p><em>Ready to invest in rental property? BiggerPockets&#8217;s <a href=\"https:\/\/www.biggerpockets.com\/guides\/buy-and-hold-rental-property?itm_source=ibl&amp;itm_medium=blogad&amp;itm_campaign=guide\" target=\"_blank\">guide to the buy and hold strategy<\/a> will teach you how to analyze rental markets, budget for your investment, choose the best property, and finance your purchase. Ready to start investing in rental property? Here&#8217;s how.<\/em><\/p>\n<h2>3 Hidden Costs That Can Tank Rental Property Profits<\/h2>\n<p><iframe loading=\"lazy\" src=\"https:\/\/www.youtube.com\/embed\/xfmTQ259BP0?ecver=1\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<h3>1. Working With People You Can&#8217;t Trust<\/h3>\n<p><span style=\"font-weight: 400;\">These people have to have your best interest at heart. They have to be of the mindset to plant the seed now and reap the harvest later. Do NOT work with people who want your money on the spot.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Real estate is long-term. It is a marriage, not a one-night stand. In order for you to have success in owning rental properties, you have to have the right people in place to work with you for an extended period of time.<\/span><\/p>\n<p>Surround yourself with these key people:<\/p>\n<ul>\n<li style=\"font-weight: 400;\"><em><strong>A good real estate agent<\/strong><\/em><span style=\"font-weight: 400;\">\u00a0to locate properties in good areas.<\/span><\/li>\n<li style=\"font-weight: 400;\"><em><b>Property management<\/b><\/em><span style=\"font-weight: 400;\">\u00a0focused on keeping tenants <\/span><b><i>staying and paying.<\/i><\/b><span style=\"font-weight: 400;\">\u00a0They must have a genuine interest in keeping tenants in your rentals paying rent. Your property management cannot be willing to immediately evict tenants so that they can charge you one and a half months&#8217; rent for new tenant turnover.<\/span><\/li>\n<li style=\"font-weight: 400;\"><em><strong>A maintenance company<\/strong><\/em><span style=\"font-weight: 400;\">\u00a0you can trust. Establish relationships with one or two maintenance guys in a particular area who aren\u2019t going to up-charge you for things that don\u2019t need to be done.<\/span><\/li>\n<li style=\"font-weight: 400;\"><em><strong>A good attorney<\/strong><\/em><span style=\"font-weight: 400;\">\u00a0in case of trouble. You never know what could happen with your rental portfolio. You must have good legal advice.<\/span><\/li>\n<li style=\"font-weight: 400;\"><em><strong>A good accountant <\/strong><\/em><span style=\"font-weight: 400;\">to help you structure your real estate endeavors so you\u2019re not paying ridiculous amounts in taxes and so you can offset as much as you can via expenses.<\/span><\/li>\n<\/ul>\n<h3>2. Maintenance Issues<\/h3>\n<p><span style=\"font-weight: 400;\">Make s<\/span>ure the roof and furnace of the property you are buying have at least 15 years left in them. Most furnaces last 20 to 30 years. Make sure you get your trusted maintenance guy or a contractor to check them out.<\/p>\n<p><em><strong>Related: <\/strong><a href=\"\/renewsblog\/2016\/06\/17\/building-teamultimate-guide\/\" target=\"_blank\" rel=\"noopener noreferrer\">How to Hire Amazing Team Members for Every Real Estate Process \u2014 From Finding Deals to Renting Them Out<\/a><\/em><\/p>\n<p>The hot water heater should most likely be replaced. Definitely replace it if the property has been sitting vacant for six to 10 months.<\/p>\n<p>I strongly suggest that all the plumbing and electrical be redone (especially if you are buying distressed or vacant homes that have been sitting vacant for a couple years).<\/p>\n<p>If you are replacing all of these things, make sure you are really buying the property at a great price. Make sure the numbers all make sense, and you\u2019re not spending too much on rehab so you aren\u2019t going over budget.<\/p>\n<h3>3. Bad Tenants<\/h3>\n<p><span style=\"font-weight: 400;\">Don\u2019t hate your tenants! You have to think of them as business partners. You need to do everything in your power to keep them<\/span> staying and paying. Remember, your paying tenants allow you to have cash flow, live life on your terms, and be financially free. So, if that means getting details about their anniversary and sending them a little gift or providing a Christmas gift card, do whatever it takes to keep them happy!<br \/>\n<em><br \/>\n<strong>Related:<\/strong> <a href=\"\/renewsblog\/2013\/01\/27\/tenant-screening\/\" target=\"_blank\" rel=\"noopener noreferrer\">Tenant Screening: The Ultimate Guide<\/a><\/em><\/p>\n<p><span style=\"font-weight: 400;\">Be prompt at communicating when issues arise. Prompt communication gives people peace of mind. Even if you can\u2019t address the issue right away, they know you are thinking about them.<\/span><\/p>\n<p>When screening prospective tenants:<\/p>\n<ul>\n<li style=\"font-weight: 400;\"><em><strong>Make sure a background check<\/strong><\/em><span style=\"font-weight: 400;\"><em><strong> is part of your tenant screening process.<\/strong><\/em> You need to know if there is any criminal history. If there are minor issues, try to work with the prospective tenant if you feel comfortable.<\/span><\/li>\n<li style=\"font-weight: 400;\"><em><strong>If there is an eviction history,\u00a0<\/strong><\/em><span style=\"font-weight: 400;\"><em><strong>that is a no-go.<\/strong> <\/em>If there is any kind of eviction on the record, the chances of us proceeding are maybe 10 percent. There have been some rare exceptions where evictions were wrongly reported. We researched them, considered the facts, and ultimately rented to the prospective tenants.<\/span><\/li>\n<li style=\"font-weight: 400;\"><em><b>Verify income.<\/b><\/em><span style=\"font-weight: 400;\">\u00a0You will want your tenants to have three times the monthly rent to justify renting the property and to have enough of a buffer to afford to pay the rent.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">As I always say, <\/span>\u201cBusiness is easy. People make it difficult.\u201d C<span style=\"font-weight: 400;\">onsider the people factor. You have to focus on the people in whatever you do.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Try to always underestimate your income and overestimate your expenses. Looking at the worst-case scenario will help you mitigate the risk and succeed!<\/span><\/p>\n<p><a href=\"https:\/\/www.youtube.com\/biggerpockets\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-114268\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/08\/6.jpg\" alt=\"ad-youtube-channel\" width=\"706\" height=\"125\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/08\/6.jpg 706w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/08\/6-300x53.jpg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/08\/6-702x125.jpg 702w\" sizes=\"auto, (max-width: 706px) 100vw, 706px\" \/><\/a><\/p>\n<p><em>What other costs would you add to this list?<\/em><\/p>\n<p><strong>Leave me a comment below!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Try to always underestimate your income and overestimate your expenses. Looking at the worst case scenario will help you mitigate the risk and succeed!<\/p>\n","protected":false},"author":1672,"featured_media":117662,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5183],"tags":[],"class_list":["post-86816","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-landlording"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/86816","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1672"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=86816"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/86816\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/117662"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=86816"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=86816"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=86816"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}