How to estimate your rental Property Expenses, by Robert Langston.

By Robert Langston

How to Estimate Your Rental Expenses

Investing in rental properties is not only lucrative but also has its benefits. When an investor invests in rental properties, they get to enjoy tax benefits and substantial returns. As attractive as that may sound, it would be naïve to ignore the costs that come with owning and running a rental property. An investor must consider the initial costs involved and the recurring expenses that will run through the investment’s lifecycle. Before buying rental properties, it is a good idea to know every possible price, whether projected or not and how much that could be. Why is that important? These expenses tend to influence the rental property’s cash flow directly. Additionally, these expenses will significantly affect what kind of financing option you choose. So how do you estimate your rental expenses?

1. DETERMINE THE PURCHASING COSTS

These are the initial costs you will incur during the property acquisition. They heavily rely on the kind of investment route you choose to follow. The routes available are based on how you will use the property. Option one is renting out the property from the word go. Option two is referred to as owner-occupied. Under this option, you can live on the property for the required 12 months as a prerequisite of your loan’s terms and conditions.

The two options have different financing options. As an investor, you will have to provide the bank with a 20 to 30 percent down payment for the first option. If you cannot meet this requirement, option two is a sort of respite. You will only have to put down as little as 3.5 percent through an FHA loan with option two. Remember, however, that both these are being financed through mortgages, shop around and find a lender that offers you the best terms.

2. KNOW THE EXPENSES THAT COME WITH

RUNNING A RENTAL PROPERTY

This stage is very important as it will determine if the investment is worthwhile. If the expenses outweigh the revenue from the property, then it is wise to back away from the investment. These expenses can be grouped into three; initial costs, monthly costs, and long-term expenses. Initial costs include appraisal fees, home inspection fees, and closing costs. On the other hand, it has; mortgage payments and property taxes, insurance, and HOA fees. Finally, the long-term expenses comprise rental income taxes, permits, property management fees, utilities, maintenance, and cleaning fees.

3. ESTIMATE THESE FEES

There exists several variables that make an accurate valuation of the fees difficult. That, however, should not put you off from investing in these kinds of properties. There are alternative methods that can help you get a clearer picture. First, you can talk to property managers in that locality. Property managers have experience with these kinds of properties and have valuable information regarding these expenses. Secondly, get in touch with local income property owners. They will provide real-time figures of their costs, and if you hit it off, they can offer you advice and tips. Finally, ask the local utility companies to give you their rates and quotations. This information will provide you with a clear picture of what your expenses will look like.

4. LOOK UP WHAT EXPERTS PROJECT THE FEES

TO BE

Real estate experts have been in the market for a long time and have invaluable experience when it comes to estimating costs for different expenses. For example, Fannie Mae recommends that the maintenance fee for a rental property should be 2 percent of the annual rental income. Experts at Mashivor. com, a project that property management fees cost between 8 to 12 percent of the monthly rent. List all the expenses alongside your projected revenue income and run these figures through the experts’ rates. By doing so, you become fully aware of what it will cost to run the property. It is easy to find all this very overwhelming, but the process should be easy with technology. Biggerpockets.com and Mashivor.com have excellent rental property tools that will make all the calculations easy. Please make use of them to avoid falling into the pitfalls of underestimations. Additional costs could crop up that you weren’t prepared for; leave room on your budget for such. Also, do not be afraid of reaching out to investors such as yourself; their input is priceless. Additionally, consider contacting real estate experts; they have experience in the area, and with their guidance, jumping the loops should be easy. The Power Is Now Media Inc. has a vast team with expertise at www.thepowerisnow.com.

ABOUT THE AUTHOR

Robert Langston has years of experience in the real estate industry. If you are thinking of investing in the Sacramento area, he is your man. Consider reaching out to Robert Langston as well at: (916) 836-1762 Email: bobbyreinc@gmail.com

ABOUT THE POWER IS NOW MEDIA INC.

The Power Is Now Media Inc. is an advocate for the empowerment of the minority communities all over the United States. We engage with various thought leaders to make sure that you are equipped with knowledge about our economy. We have partnered with First Bank to provide you with products and services that will help you prepare better for the future. We are also advocating for first-time home buyers. The Power Is Now Media Inc. can help your homeownership dream a reality. Go to www.neverrentagain.com and get started today.

Eric Lawrence Frazier MBA DRE, Vice President and Mortgage Advisor of First Bank, NMLS 461807 President and CEO of The Power Is Now Media Inc. www.thepowerisnow.com

Sources. https://www.fortunebuilders.com/rental-property-investment/ https://www.biggerpockets.com/blog/2014-12-02-rental-property-expenses