Whether you're buying a home, renting out a home, or simply shopping for all of the goods and services you've always needed, you'll likely come across some unexpected costs. It's frustrating, especially if you have not budgeted for them. Owning a Philadelphia rental property is a great investment because you'll earn recurring rent every month and some impressive long term ROI as your asset appreciates in value. But, real estate investing is not just about income. There are costs to owning a rental investment, too. If you're not prepared, those costs can feel like a larger burden than you were expecting as an investor. We're here to serve as a resource to investors and rental property owners in Philadelphia and the surrounding metro area. We'd like to help you avoid the sticker shock that can sometimes come with owning rental property. So, let's take a look at some of the costs you may not see coming.
Inflation as an Investment Cost
There's something timely to consider when we're talking about the costs we don't always anticipate as investors: inflation. Materials, services, products, and labor are all costing more now than they did a year or two ago. Inflation rises and falls based on differing economic factors. We're in a period of higher than average inflation, and that's going to impact how you lease, manage, and maintain your rental properties. As you budget and prepare, don't forget that even fixed costs rarely stay fixed for too long. Plan for higher landscaping, pest control, and maintenance costs from year to year. Paint will cost more during turnovers. Advertising, insurance premiums, and professional service fees can all be expected to go up.
Unexpected Vacancy and Turnover Costs
There will be periods of vacancy when you're renting out a home, and it's necessary to work the cost of potential vacancy times into your rental property budget. Vacancy will cause gaps in your rental income. When you're preparing the property for a new tenant or marketing your home to find someone to rent it, you won't be making any money, but you'll still have expenses associated with the property that need to be covered. Maybe you have budgeted the cost of losing your rental income during turnover periods, but have you included things like landscaping, pest control, and security? These expenses are going to be incurred by you without the benefit of any rental income to offset them when the property is vacant. You'll have to pay to keep the utilities on, and there are likely to be repairs needed after one tenant moves out. Turnovers come with extra maintenance and cleaning expenses. Depending on the condition of your home and the wear and tear that you find after a tenant moves out, you could be spending thousands of dollars just to get the property ready to be rented to a new tenant. Budget more than you'll likely need. It will seem less shocking when you have to cover those turnover costs while you're not earning income.
The Cost of a Bad Philadelphia Tenant
Bad tenants cost owners money. You might be surprised to find out what it costs to evict a tenant who isn't paying rent or following the lease. Sometimes, you won't even be aware that you have a bad tenant in place. You might not hear from them at all during the lease period, and then when they leave, you could walk into the home and find a lot of damage. Collecting an adequate security deposit and conducting inspections can help mitigate this risk. Avoid bad tenants with a careful screening process, a strong lease, and a tenant relationship that's both positive and professional. When you work well with your residents, you're less likely to find yourself evicting them or managing tenant conflict.
Emergency Repair Costs are Higher than Expected
Routine maintenance is often easy to absorb. Those emergency repairs, however, are unexpected, and almost always more expensive. You may be caught off guard by an issue with a sewer line or a plumbing problem. There may be a tree that crashes through your window or a fire caused by bad wiring. You'll have to respond to emergencies like these right away, and they will cost more than the preventative services you pay for. That's just the nature of emergency repairs - they cost more than those routine fixes. If the property is damaged to the point that it's not habitable, you'll also need to pay for your tenants to stay elsewhere until the repairs are complete. Good preventative maintenance plans can reduce emergencies. If you're having your systems inspected and serviced annually, you can reduce the likelihood of an emergency. Sign service contracts with roofers, plumbers, and HVAC technicians so you know you have a support system of vendors and contractors to keep your property in great condition.
Unexpected Replacement and Repair Costs
Most of the repairs and updates that your rental home needs will be planned. Like emergency maintenance, however, even routine maintenance can turn out to be more expensive than you anticipated. You might be surprised at what it costs to put in a new roof or replace an appliance in the kitchen. Rental property owners budget in different ways. Some will set aside a portion of the monthly rent that's collected to avoid these surprise expenses during a tenancy. If you can build up a maintenance reserve, these unexpected costs won't seem as difficult to manage. Understanding the life expectancy of small things like paint and large things like your roof is also important. If you know your air conditioning unit is going to last 15 to 20 years, anything past the 15 year market could mean that you have to replace the entire system. Most appliances will last for 10 years, but if you find yourself repairing the refrigerator over and over again, it might be time to simply invest in a replacement. Keeping costs down is one of the best reasons to hire a professional Philadelphia property management partner. We can help with budgeting, and we can also mitigate the high cost of maintaining your property. Contact us at Innovate Realty if you'd like to talk about rental property expenses. At Innovate Realty, we work with investors of all experience levels in the greater Philadelphia metro area as well as surrounding suburban areas in Montgomery, Chester, Burlington, and Delaware County, to the Delaware River.
