Investment Property Expenses – The Basics
Suppose you are considering purchasing an income-producing property, whether for short-term or long-term rentals. However, the rent (potential income) received is usually the most attractive part of ownership (along with anticipated appreciation). In that case, expenses usually take a huge bite out of that income. And really, the potential gross income is not as important to your bottom line as the potential net income.
Below are some of the more-general expenses you can expect to find for short-term and long-term property rentals. These lists will provide you with a framework to find out as much as you can about a property’s historic expenses before purchasing so you can make sure the real income and expenses fall in line with your expectations:
Short-Term Property Rental Long-Term Property Rental
· Mortgage (if applicable)· Property Taxes
· Insurance
· Property Management (if applicable)
· Utilities – in a short-term rental, these would be the owner’s responsibility
· HOA dues – if in a HOA or condo association
· Advertising/Booking Service – such as on VRBO
· Garden/Lawnmowing/Landscaping
· Cleaning
· Toilet Paper/Paper Towels/Supply Restocking
· Local Occupancy and/or Income Taxes
· Local Permits
· Maintenance
· Mortgage (if applicable)· Property Taxes
· Insurance
· Property Management (if applicable)
· Utilities – some might be owner responsibility while others may get passed on to the tenant
· HOA dues – if in a HOA or condo association
· Advertising the rental when vacant
· Garden/Lawnmowing/Landscaping
· Local Income Taxes
· Local Permits
· Maintenance
And remember, real vacancy rates will also take a bite out of income!
Tax Benefits
One other thing we haven’t accounted for here is the tax benefits of owning an income-producing property. Although you will want to form a tax strategy with your accountant, make sure they understand how to use the tax code in your best interest.
One other thing to keep in mind as you measure the income and expenses is that time is usually on the investor’s side. The amount received in rent usually increases per year, expenses may not increase as rapidly, and if any mortgage is at a fixed rate, that amount won’t increase.
It is vital to get the complete financial picture of a property before moving forward. If you are beginning to think about an investment property, let’s discuss it!
Hi! We’re Josh and Jolene Baijot, the creators of this website. We’re also brokers in Bellingham, Washington. Thank you for taking the time to read this blog post. We appreciate your time spent on this site. You can connect with us on Facebook, Instagram, or contact us through this website.
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