What Expense Do New Landlords Underestimate Most?

Question

For experienced landlords:

What expense surprised you most when you first started?

Maintenance?

Vacancy?

CapEx?

Property management?

Insurance?

Something else?

Would love to hear the expenses newer investors should be building into their numbers from day one.

Kyle Mccaw · Answer

@Linda Murray

For me, it’s not one expense — it’s underestimating how many little expenses eventually become big expenses.

New investors tend to model the mortgage, taxes, insurance, management, and maybe a maintenance percentage. Then reality shows up. A turnover needs paint, cleaning, a few blinds, some landscaping, a lock change and a handful of repairs. An HVAC system dies. A sewer line backs up. A tenant moves out unexpectedly and you lose a month of rent while spending money getting the house ready again.

If I had to pick one, though, I’d say turnover/vacancy. People often calculate vacancy as simply “one month without rent.” It’s really lost rent + utilities + make-ready + leasing costs + the repairs you discover once the tenant is gone. That combination can hurt.

I’d also tell new investors not to confuse cash flow with profit. Real estate works in several ways: cash flow, appreciation, principal paydown and depreciation/tax benefits. You absolutely need adequate reserves and realistic expenses, but a property that doesn’t throw off huge cash flow every month isn’t necessarily a bad investment.

Underwrite conservatively, keep reserves, and think in decades — not months.

Patrick O'Sullivan · Answer

One expense I think gets underestimated is the timing of expenses.

A property can look great when you average everything over 12 months, but expenses rarely arrive evenly. You might have a turnover, HVAC repair, insurance bill, and a vacancy all within a couple of months. Meanwhile, the mortgage and other fixed expenses keep coming regardless of whether rent does.

That’s why I think reserves are just as important as accurately estimating the individual expense categories. You can have a profitable rental on paper and still get into trouble if several perfectly normal expenses happen at the same time.

I’d also budget differently based on the age and condition of the property rather than using the same maintenance/CapEx percentage for everything. A newer roof and HVAC should have a very different near-term reserve requirement than systems already approaching the end of their useful lives.

For a new landlord, I’d rather see slightly too much cash sitting in reserves for the first few years than have every dollar invested and discover what “average annual expenses” actually look like in real life.

Johnathan Cotcher · Answer

The one that got me was the slow bleed of small stuff, not one big line item. Turnover costs (paint, cleaning, a lock change, a few odds and ends) are individually small enough that you don't budget for them, but they hit every single vacancy, and they add up to real money over a year of normal turnover.

The other one I underestimated was how many little recurring costs don't have an obvious home in your budget: a screening fee you ate for one applicant, a subscription, the portion of your phone bill that's actually rental business. None of them are big enough on their own to notice, but by the time you're doing taxes in April you've forgotten most of them happened, and that's real deductible expense you're not claiming, not just money you spent.

What's helped me most is logging things the week they happen instead of trying to reconstruct the year later. A five-second note when you buy something is a lot more reliable than your memory in March.

David Miller · Answer

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Michele Fischer · Answer

I think it is normal for people to budget that 3-4% of rent will be uncollectable, but I'm seeing 8%.  Having units occupied but not paying rent is not something I was well prepared for, and it has gotten so much worse since the pandemic.

Adam Bartomeo · Answer

It is slightly underestimating several expenses and not accounting for some expenses during the due diligence period. It is rare that one big expense wasn't accounted for.

Jim Johnson · Answer

CapEx is the one I’d make sure new landlords don’t overlook. Repairs are easier to account for because you’re dealing with them as they happen, but a roof, HVAC, water heater, or other major replacement can go years without costing you anything and then hit all at once. I’d rather treat those systems as expenses that are slowly building in the background and reserve for them along the way, even when everything is working fine.

What Expense Do New Landlords Underestimate Most?

For experienced landlords:

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