I've been doing a ton of research over the last few months and feel like I've got a pretty good handle on the expenses. Every once in a while though, I hear on the podcast some unforeseen expense that an investor ran in to or some fee they had to pay for something illegal they did on accident.
I am aware of the obvious things: mortgage, repairs, taxes, utilities, insurance, mortgage insurance, and turnover costs, but what are some of the less known expenses?
What are a some surprise expense you've ran into? How much did they cost? Were they one-time or recurring? Were you able to still cash-flow with them? Was it worth it in the end? How (if at all) could you have prevented that having to pay them? All the information you can give me is helpful in my preperation!
If it helps, I'm planning to invest in the Maryland (MD) / Washington DC area. I'm looking at both buy and hold rental strategies as well as house flipping and maybe even wholesaling (once I get some more experience).
Thank you all so much for your help, I couldn't do this without you!
Great question, I'm new so I wouldn't be the best at this but if you go for a condo make sure you ask your realtor the condo facts sheet (or something like that). You can't sell a condo if a certain amount of people are not paying the condo few. Also you have to see if it's FHA friendly so you don't exclude some buyers. Your real estate agent would know more then me.
Thanks for the question
I'm based out of Vermont, so a bunch of the surprise ones (related to rental properties) are cold related which may or may not impact you:
1. Ice dam on the roof. The ice blocks water from running off, and water finds a different down, running through the ceiling. $500
2. Someone leaves the laundry room door open and it freezes the water pipes, which burst and flood the surroundings. It's a 5 unit apartment building, and no one admits they did it. $2500.
3. New smoke detector code means all of the smoke detectors have to be updated by an electrician. $750.
They're not terrible expenses but over 10 years of rental properties, something new pops up each year! Still, the rewards outweigh the headaches, for me at least.
Hi @David Grimm
First thing to consider is how you are going to "reach" potential sellers in the area you have targeted. The BEST way is to pay for accurate, current data from a company like CoreLogic/RealQuest and send out mailers.
The beauty with this data is you can request a very specific type of property and get a report in minutes!
For example: I have researched and targeted 5 acre parcel in XYZ County and only want to contact properties zoned: vacant land, residential, recreational, etc. Then I get a list of say 5,000 & I can scrub it down to 3,000 after removing duplicate sellers or whatever. Then I create a standard letter and mail merge all to one great document and send to folks like YellowLetters to mail for me. THEN I have ONLY interested sellers calling ME!
Costs vary depending on volume, but you get the idea. Certainly better than some folks "driving for dollars" and spending all day canvasing areas to find a handful of boarded up homes to try and contact and motivate those sellers.
Hope this helps!
The one that surprised me was the city of Phoenix charging sales tax on rental income. Other than that, I actually did a pretty good job anticipating the expenses.
Two of the expenses that have surprised me while doing rehab projects are permitting fees for town and city permits and trash hauling fees for removed building materials. I've learned to reduce the trash hauling fees by carefully removing what can be reused and offering it up on Craigslist either for free or for a low price.
@David Grimm one surprise expense I should have known about but didn't was the turnover expense of having bad residents. Make sure you property screen them or, if acquiring a property, that you know how they were screened - otherwise, when they move out they might leave the place in shambles.
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