Biggest Expense in rentals?

Question

Hi everyone!

I am looking to purchase my first rental property.

What is the biggest on going expenses??

Single family home biggest expense?

Condo rental biggest expense besides HOA?

Thanks in advance!

Nick

Will Fraser · Answer

One of my key findings in the first 40 units I've owned is that it totally depends on the bundle of lifecycles you purchase.  For example:  if you buy 20 new construction homes then vacancy will be your biggest cost.  If you buy 20 homes that are 30-70 years old and in a treed area then plumbing will likely be your biggest cash sinker.  If you live in an extreme climate then windows and HVAC could eat up your expense dollars at age.  It all depends on where you're buying these assets in their individual component lifecycles.

Yet another praise must be given for the BRRRR strategy.  If you can find a property that gives you the budget to DEEPLY renovate the house then refinance and have a bit of extra equity, you're setting yourself up to recreate the splendor of buying a new construction property, but often in more preferable locations.

Anthony McEvoy · Answer

@Stephen Brown @Nick Delfin... Even bigger than vacancy... A bad tenant.  A bad tenant will cost you more than a vacant unit.  Make your rental attract the best tenants so you have the best to choose from in the application pool.  Also have a good application process.

Matthew Irish-Jones · Answer

It is plumbing bro!!!  Make sure you have updated drain lines and water lines.  If you do not, you will be shocked at the amount of money you can spend on clogged pipes, leaks that damage dry wall and collapse ceilings, low water pressure from rusted galvanized lines, etc...  Bad plumbing will be your worst nightmare.

Stephen Brown · Answer

Biggest expense... besides any capital expenditures like the roof or HVAC... I'd say is vacancy. Make sure you know that you can get the rent you want for the condition of the property. Talk to a local property manager before purchasing.

Evan Polaski · Answer

@Nick Delfin, of course there are a lot of factors in this, and how you slice items up.

If you are highly leveraged, i.e. FHA 3.5% down, it will likely be your mortgage payment.

Beyond that, it should be CAPEX/repair reserves.  A brand new property will still have a lot of CAPEX if you hold long enough.  The 20 yr life is not too far off, on average.  In my budget, I include roofs, HVAC, water heater, appliances, kitchen and bath remodels, exterior paint, interior full repaint, new blinds, flooring, etc.  Some of these would technically fall under repairs and maintenance, but that's why I bundle them together.  I reserve about $450/mo for these in order to have my estimated cost available by the time the useful life hits.

Carlos Ptriawan · Answer

When shall we update the drain line when there's no problem yet ?btw one of the biggest issues I've seen during turnover is squatter if they coming to your home. Other issue is manageable but these squatters are really destroying the house.

Nick Delfin · Answer

Thank you Matthew! Definitely good to know.

Nick Delfin · Answer

Thank you everyone! This is amazing advice. Cheers

Jared Hottle · Answer

@Will Fraser great thoughts.

Jared Hottle · Answer

Capital Expenditures is what always makes me nervous. Rule of thumb is everything lasts about 20 years.

Roof: See if the assessor website shows when the roof was done

Furnace/AC: Could also be on the assessor website or check inspection tags or panels for manufactured dates

Siding: Maintenance free vinyl is great for rental and sometimes needed for section 8 approval

windows: if you have vinyl replacements that is a good sign

Concrete driveway: some areas required paved off-street surface for every possible rented bedroom. so see if you have the space.

Foundation: any bowing walls.

These are the biggest things I would check. if a place has any of these I would call a local contractor and see what he would charge to do any of these items and look to negotiate with those numbers in hand.

Biggest Expense in rentals?

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