New to Real Estate · Lincoln, NE · Member since 2020 · 13 posts · 8 votes
I'm saving up to buy my first investment property within the next year. I'm sure the costs of buying and owning a home can add up quickly. I want to be prepared when it comes to closing time. What fees/additional expenses should I be expecting?
Real Estate Agent · Boise, ID · Member since 2016 · 1k+ posts · 888 votes
5y
@Abigail Hansen You can break the cost into a few categories. First would be acquiring the property: Inspection cost, appraisal if financing, and then closing cost.
Once you have the property you have insurance, and taxes which you probably already know about. Then you have the utilities which can add up until you get it rented. Some properties you might pay certain utilities and the tenants pay some or all utilities. Also if you are doing a larger rehab expect some expense here. Then any rehab you have those cost, they add up quick from light bulbs and batteries to water heaters and air conditioners.
Once you get a tenant in it they will find things that don't work that you missed because nobody has been living there get ready for a few calls to sort things out if its been awhile since anyone lived there. These are usually minor cost but depending how through you were on getting it ready could be nothing.
If you are using a PM ask them about their process and what to expect in fees for getting a property ready and a tenant in place. If you aren't using a PM then it will depend how you screen the tenant and what programs you use on cost for advertising or screening( screening can usually be put on the tenant).
When having the tenant any repairs that come up will be additional cost (largely dependent on the property and tenant). Also will have large ticket items or Capital Expenditures you will need to set money aside for to make repairs when the come due like the roof, siding, HVAC, and etc..
Lastly the turn over process starts it all over again minus the loan and closing cost aspect. Rinse repeat.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
5y
@Abigail Hansen turnover cost, vacancy, property management and repairs are all things many new investors under estimate. Also there should be some reserves for "Capital Expenses" These are things like a new roof or new water heater that don't happen very often but they will come up eventually.
There are also a multitude of small minor expenses like licenses, inspections, misc fines.
Often on BP you may hear about the 50% rule. This rule says expenses will be about 50% of your rents. - That does not include your loan principal and interest payments. Now many people disagree with this rule and it depends on the price range and rents of your particular property.
We used to run pretty close to that. Now we are probably more like 40%. We figure about $5,000 plus the cost of the property taxes. We do it that way because property taxes can vary by a few thousand here in Baltimore