What Are Operating Expenses For A Rental Property:
Operating expenses are expenses that you will have to pay every month to keep your rental property running. These operating expenses can include maintenance, repairs, taxes, insurance, utilities and other costs you will need to spend money on in order to operate your rental property.
Operating a rental property is not free of cost. Even if you own a property instead of renting one, you will still need to pay for services like taxes, maintenance and repairs from time to time. It just means that as a landlord you will end up paying those expenses on a much higher scale than the tenants who rent from you do.
If you want to operate a profitable rental property, it’s important that you know what operating expenses for a rental property look like so that you can budget for them accordingly and avoid spending more than your income each month on your rentals.
Rentals generate a lot of income for most property investors. But they also come with high operating expenses. If you want to make money from your rental property investments, you’ll need to understand the operating costs involved so you can manage them and minimize their impact on your overall profitability.
Operating expenses for a rental property typically include maintenance, insurance, repairs and taxes. They are unavoidable costs that are necessary to keep the property running as smoothly as possible. But they can also be minimized and even eliminated altogether if you take the time to understand where your Operating Costs Are Coming From and how you can reduce them in future.
Maintenance
If you own rental property, there is a very high likelihood that the buildings will need maintenance. Unlike a home, which gets a few basic cleaning services, commercial buildings are on a 24/7/365 basis in close contact with human beings.
Everything from toilets to elevators gets dirty, needs repair or suffers wear and tear. And without regular maintenance, it’s inevitable that everything will eventually wear out. For rental properties, the frequency and severity of maintenance issues will depend on the type of building and its location.
But even a single serious problem can have a huge negative impact on a rental property. If a tenant needs to be evacuated because a major structural component is broken, you could be facing significant repair costs and lost income.
Insurance
Most investors know that they need to have a building and contents insurance policy for all of their rental properties. But many also don’t understand the importance of having insurance for different types of buildings and assets. For example, a single-family property might only require homeowner’s insurance.
But a rental property might also require tenant’s insurance to protect you from potential lawsuits from injured tenants or their relatives. Different types of rental properties also have different insurance needs.
Apartments and condominiums likely have less valuable assets that need to be protected by separate insurance policies. A warehouse or office might require additional coverage that provides protection for more expensive assets like computers, furniture and other equipment.
Repairs
Most investors are well aware of the importance of making repairs. But they often don’t understand the cost of repairs in detail. For example, they may be under the impression that they can simply expect the roof to need maintenance every few years.
But this isn’t necessarily true. For most non-seismic roofing materials, maintenance is the norm. In fact, it’s a good thing because it means that the roofing material is still in good shape and has no significant issues that could lead to an expensive repair.
What many investors don’t realize is that repairs even for a seemingly “average” roof can be very expensive. This is because most cities use a “net-repair” system when assessing the cost of repairs. Unlike other types of assets like windows and plumbing, roof repairs are typically assessed by looking at the roof’s condition before the repair.
Taxes And Fees
When you own rental property, you will also need to pay property taxes. And since they are a mandatory fee, there’s no way to avoid them. But you can minimize the amount you pay by ensuring that all of your rental properties are treated as separate entities for tax purposes.
This can significantly reduce your overall tax burden. Taxes, fees and other charges can also add up quickly if you have many rental properties. Some investors choose to have one property manager handle all of their rental properties. In this way, any fees and charges related to one rental property are included in the total cost of all of your other properties.
Bottom Line
Operating expenses for a rental property typically include maintenance, insurance, repairs and taxes. These expenses are unavoidable and should be minimized as much as possible.
The best way to reduce them is by having as many good tenants as possible. A good tenant will take care of any maintenance issues, pay their rent and leave the property in good condition.
But if you do encounter an expense that’s outside of your control, like a major repair, there are steps you can take to minimize its impact. For example, you can request a realistic estimate before making a large repair.
This can help you to better budget and plan for the costs involved. As you can see, operating a rental property comes with unavoidable expenses. But by understanding where your operating costs are coming from, you can maximize your profitability from the rental property.
