Expenses of Owning Real Estate as Investment (Insider’s Take) | Your Mortgage Guide

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Expenses of Owning Real Estate as an Investment

We teach people how to invest in real estate to generate passive income; therefore, it’s critical for us to educate our clients on the expenses associated with rental investment properties.

We share all expenses associated with the property to help you become an educated buyer and include these expenses in your budget before you buy.

When we work with our clients, we cover tax deductions, expenses and various methods to decrease their expenses and increase their revenue.

Here are some expenses you need to include in your budget:

1. Basic Expenses

Everyone knows about basic expenses such as mortgage payments, property taxes, insurance or strata fee(if applicable).

Another expense, which may or may not be part of your mortgage payment, is the interest cost for the borrowed down payment – only applicable when you borrow your down payment

Utilities should be added if you cover them for your tenants. We don’t recommend it because of the many variables that could go wrong.

2. Property Management

This is the “best” expense our clients are grateful for.

Why?

Because the property manager deals with headaches, associated with the property, on your behalf.

They do everything from finding tenants, showing the property to potential tenants, collecting rent, and arranging repairs. Our clients, who manage their rental properties themselves, sometimes they get phone calls in the middle of the night and they have to deal with the problems on their own.

Our other clients sleep in peace knowing their property manager will deal with all issues. You simply cash the rent cheques and your property manager handles everything else (with your guidance).

Property management fees vary from 6% to 15% depending on the property manager and size of the property. We recommend allocating 8%-10% of the gross rent amount for property management.

3. Maintenance and Holding Funds

People often forget about maintenance. Things break down or get broken by your tenants, or unexpected urgent expenses come up. Yes, it happens. It’s common. Things that break down include appliances, water tank or furnace, leaks or plumbing issues as the most common problems.

As a smart investor educated by Your Mortgage Guide, you should plan and budget for these expenses beforehand.

We recommend setting aside 3% of the gross rent in a separate bank account for maintenance. When you already have the funds set aside, it eliminates the stress of finding money for repairs.

Your tenant is building up this reserve maintenance fund for you, which means you don’t have to invest additional money into your property.

Besides the 3% for maintenance, we recommend you set aside 3 months worth of mortgage payments beforehand as well. These funds are held in the same bank account used for maintenance funds. These funds are to cover any vacancies you have after your tenant moves out.

4. Other Expenses

These expenses may not apply to all rental properties, but you need to consider and include them in our budget, if needed.

Advertising

You may have to spend money on running ads to find tenants, or expenses maintaining a website dedicated to your rental business.

Landscaping and Pool Care

If your rental property has a yard or a swimming pool, you may have to budget for landscaping and maintaining the pool. We recommend you don’t cover these expenses and let the tenants handle maintenance. Initial landscaping upon purchase needs to be in your budget.

Accounting and Legal

If you have an accountant or a lawyer for your rental, you need to account for their fees in your budget. This isn’t needed for investors with fewer properties.

Conclusion

Some of these expenses are tax deductible and help you with income tax savings at the end of the year. Consult your accountant to learn more about tax deductions.

This list may seem overwhelming to you. If this list is increasing your heart rate, we have good news for you.

When we help our clients buy their home, we help them do the homework. Not only that, we also help them find ways to decrease their expenses and increase their income.

We covered this in detail in our other post – How to Increase your Cash Flow with Your Rental Property: Earn More Today

We hope this helps you plan your purchase better.

If you’re feeling overwhelmed and need more help, we can meet with you to discuss buying options, even if you don’t have money saved for a purchase (you must own a home).

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