HOW MUCH IS RENTAL PROPERTY? THE OWNER’S GUIDE TO EXPENSES

Even if you’re just exploring becoming a rental property owner, you know that rental property is a solid investment that will pay off for years to come. But, how much does a rental property cost? What expenses do owners incur over time? Let’s dig in!

Upfront costs
The upfront costs will be familiar to you if you’ve purchased a home in the past: a down payment and closing costs. But, the down payment will be very different this time around if you’re opting to purchase the property only to rent out (versus living it in while renting it out, called “owner-occupied”). The down payment on a rental property will generally be around 20-25% of the purchase price, however you may be able to find some financing. Financing for your rental property will also work differently and have different criteria from other home loans. Speak with a qualified realtor about your specific situation to find out your options.

Long-term costs
Here are some of the typical ongoing costs a rental property owner deals with.

  • Mortgage payment: Note that the mortgage payment on a rental property will often be about 1% higher than a “normal” home (also known as a primary residence).
  • Property taxes: These taxes are collected by the local government for essentials like schools and infrastructure. You can use handy tools like this one from SmartAsset to estimate yours!
  • Maintenance and improvements: Experts suggest that rental property owners budget for about 10-15% of the annual property rent for maintenance. As the property ages, you’ll want to keep on top of improvements, too, to ensure you retain good tenants. The cost for those projects will vary based on the size of the property and the specific project you choose to undertake.
  • Vacancy costs: When your property sits empty, you’re on the hook for all the expenses for the property with no rent money to help out.
  • Management: Owning rental property is a big job, which is why many people hire a professional property manager. These pros help with marketing the unit(s) when unoccupied, rent collection, eviction services, and more. The cost will vary from manager to manager, but a common figure is about 8-10% of the property’s monthly rent.
  • Homeowners insurance: This figure is often rolled into your mortgage payment.
  • Marketing: Good marketing means that your property will never be vacant for long and your cash flow never stops. Instead of working with different pros for property management and marketing, look for a team that offers both services.

While we’re on the topic of professional property managers who offer a full range of services, let’s chat about what Cheng Real Estate Group offers!

Work with us and we can help with the complete marketing of units, tenant screening, move-in and move-out, rent collection, property maintenance, and much more! Learn more here.