Major Expenses Real Estate Investors Don’t Realize
Investing in real estate is supposed to make you money, right? What many people don’t realize when they first start investing in real estate is that there are a lot of expenses involved as well. Some of those expenses are significant, which can easily take you by surprise if you aren’t paying attention. Here are some major expenses real estate investors don’t realize.
Major Expenses Real Estate Investors Don’t Realize: Insurance
Unless you’re living in the property yourself, you need landlord insurance, not homeowner’s insurance. Landlord insurance comes in three standard policies: DP-1, DP-2, and DP-3. Each offers different levels of coverage, though none cover tenant belongings. Consider requiring renter’s insurance to help your tenants protect themselves.
So how much does landlord insurance cost? Rates vary by state, but you can expect somewhere between $937-$4,060 per year (Delaware vs Colorado). It’s not too bad if you break up the cost per month, but even the lower end is hard to come up with all at once if you aren’t careful.
Vacancies and Turnovers
If you want to make money from your investment properties, you have to have paying tenants living in them. Vacant units mean lost revenue for your real estate business. If they stay vacant for long, you’ll lose a lot of money and may even go under.
A high turnover rate doesn’t help either. You have to go through all the work and expenses of finding new tenants instead of collecting rent payments. Establish good relationships with your tenants to reduce your turnover and be proactive about finding people to fill vacancies when they happen.
Major Expenses Real Estate Investors Don’t Realize: Time
What value would you place on your time? It’s the most valuable resource you have. After all, you can never get more of it. The time you put into your property is valuable–include it when determining the cost of your units. Calculate how many hours you put toward property maintenance and multiply that by what your time is worth. This can help you determine if it’s worth the cost of working with a property manager to get that time back.
No form of investing, including real estate investing, is without a measure of risk. In the case of real estate, major expenses that go along with managing a rental property are a significant risk factor. Carefully choose your investment properties, taking their value, their location, and what you can reasonably charge for rent into account. While that won’t eliminate your risk, it can help mitigate it and increase your chances of success.
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Steelbridge Realty LLC is a Licensed Real Estate Brokerage that utilizes cutting-edge marketing techniques and data-driven Real Estate solutions in today’s ever-changing environment. Our group of professionals has decades of experience and has navigated through many business cycles. Our diverse background gives us the tools to guide people toward successful decisions.
