What Do I Need To Prepare For Financially To Run A Buy And Hold Property?

Question

Hi,

I am looking to get started in real estate investing for my 1st property by the end of the year. I am new but I wanted to find out in order to run a successful buy and hold rental property what monthly expenses will I be expected to pay? I do plan on investing out of state so I already know I will have to pay a property manager but what type of taxes can I expect to pay and what types of insurance or other fees would I need to factor in monthly? Thanks for your time.

Drea Na · Answer

Hi Treasa,

Congrats on taking the next step in your investing journey! A great resource I highly recommend is Long-Distance Real Estate Investing by David Greene. It’s packed with practical insights on managing properties from out of state—especially around building a strong local team (yep, you’ll need more than just a property manager—think handyman, realtor, even a boots-on-the-ground contact). Super helpful read as you scale! As things grow, it’s imperative to keep your property finances organized from day one. Even just tracking income and expenses by property in something like QuickBooks can save you major stress come tax time and give you a clearer picture of your cash flow.

Mackaylee Beach · Answer

Embarking on a real estate investment journey is exciting, and understanding your monthly expenses is crucial for successful planning. Here are some key expenses you should consider when managing a buy-and-hold rental property:

• **Mortgage Payment**: If you finance the property, this will likely be your largest monthly expense. It includes both principal and interest.
• **Property Taxes**: These vary significantly by location, so research the rates in the area where your property is located. They are typically paid annually but can be broken down into monthly expenses for budgeting purposes.
• **Insurance**: You’ll need landlord insurance, which is different from standard homeowners insurance. It covers property damage, liability, and loss of rental income in certain situations.
• **Property Management Fees**: Since you're investing out of state, hiring a property manager is a smart move. Fees can range from 8% to 12% of the monthly rental income.
• **Maintenance and Repairs**: Set aside funds for regular maintenance and unexpected repairs. A common rule of thumb is to budget 1% of the property’s value annually or a fixed percentage of rental income.
• **HOA Fees**: If the property is part of a homeowners association, you'll need to pay monthly or quarterly fees, which cover communal maintenance and amenities.
• **Utilities**: Depending on your lease agreement, you may be responsible for some utilities if not passed on to the tenant.
• **Vacancy Rate**: Factor in potential vacancy periods. It’s wise to set aside a portion of rental income to cover months when the property might be unoccupied.
• **Legal and Accounting Fees**: Consider costs for legal advice, lease agreements, and accounting services, especially if you’re managing multiple properties or dealing with complex tax situations.

By planning ahead for these expenses, you can better assess the potential profitability of your investment and ensure a smoother experience as a landlord. Good luck with your venture into real estate investing!

Caleb Brown · Answer

Your expenses can be -

Property management(if you hire it out)

Repairs/maintenance(a % you set aside from the rent)

Home insurance

Vacancy(a % you budget from the rent)

Utilities(most scenarios tenant pays but something to verify)

Outside of these monthly things make sure you have reserves, a nest egg set aside for any emergencies that come up. If you are looking out of state establish a team and you should be off to the races.

Min Zhang · Answer

Awesome goal, Treasa! are you already looking at a specific market, or still narrowing it down?

For buy-and-hold rentals, especially out-of-state, it’s smart to plan ahead for all the recurring costs. You’ve got the big ones: mortgage, property taxes, insurance, and PM fees. On top of that, I usually factor in reserves for maintenance, vacancy, and CapEx (even if they don’t hit every month).

Happy to break it down more or walk through sample numbers with you. Feel free to reach out!

Aaron Zimmerman · Answer

Welcome to the community! You want to make sure you fully analyze your properties you purchase and to make sure you have plenty of reserves. More than you'd think or you should have the ability to fill your reserves quickly with another source besides your rental property (I.e. w-2 job)

Treasa Manigault · Answer

Thank you everyone for your feedback.  It’s all so very helpful.  I am excited to get started as a new investor.  I’m going to review all that you told me, look into my budget and look to get started by the end of the year.  Thanks again everyone!

What Do I Need To Prepare For Financially To Run A Buy And Hold Property?

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