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.

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.

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.