While rental properties offer a considerable income, they also come along with a substantial amount of expenses. As a property investor or property manager, you need to understand these costs to estimate your profit and maintain it for that matter.
People associate most lost income with turnovers. Aside from the simple fact that moveouts are a hassle, they also come with maintenance. Depending on the condition of the unit, you need to paint walls, repair appliances, and complete routine cleaning. As you know – these quick fixes added up fast. Starting at an average of $1,000 and sometimes reaching as much as $5,000.
Simply put, keep tenants on extended leases to cut costs. Consider incentives that may cost you a bit upfront, but offer a higher long-term payoff. Happy occupants mean long-term occupants and long-term occupants make for happy property managers.
Property managers need to be cognizant of general rental patterns as well. When do tenants start shopping for new places? In some cities, people are already planning their next locale only a month into their current year-long lease. Make sure your properties are listed, and you make current occupants aware of when you intend to start re-occupying their unit if they don’t decide to sign a lease for the following term. When do rentals generally run from in your area? For example, Boston has some of the most standardized contracts. Given that the college students dominate the city, most leases follow the school year, starting on September 1st and ending on August 31st.
By understanding these patterns and maintaining transparency with your current occupants, you can eliminate some of the stress associated with an unoccupied property. You also position yourself better to avoid these altogether. The earlier you start to market an upcoming opening, the more time you give yourself or your realtor to fill it. Planning and research prepare you for long-term success.
Do some research
Finally, to adjust your expenses, you have to understand where they are coming from. Hidden costs hide in lump sum occupant prices for utilities. When is the last time you researched the cost of each occupant’s electric or hot water? While the fee you came up with five years ago, service charges change and as a result, your charges change.
Plan for expenses that come up throughout a lease as well likes appliance repairs or leaks. Naturally, these numbers vary based on the age and condition of the property, but the internet offers plenty of rough estimates. As one property management company says, “On average, you can expect annual maintenance costs to average about 1.5 times the monthly rental rate; more for older homes, less for newer ones.” To properly estimate profits, deduct this rate from each total.