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Owner Tips #103 The Costs of Owning an Investment Property

Owner Tips #103 The Costs of Owning an Investment Property

Owner Tips #1003: The costs of a Owning an Investment Property

To increase your rental income as a property owner or landlord, you are aware that you need to fill rental vacancies as soon as possible. Is it the only way that empty rentals are losing you money, though? Unfortunately, vacant homes pose a threat to more than just a steady stream of income. How much these vacant properties are truly costing you is explained by our TopFlight property management experts.

1. Insurance

We all know as property owners and frankly common sense that we should carry insurance on our properties.  The real question is how much insurance should we carry?  This is a decision that is up to the property owner and any lien holders of the property.  

What we recommend, is at a minimum have an insurance policy that will cover the cost to rebuild the property should you encounter an unfortunate natural disaster, fire, flood etc.   We recently had a homeowner that purchased a property for a very low amount in today's market for around 30k, they paid cash for the property so there was no lien on the property.  When obtaining insurance, they only obtained insurance for the cost that was paid for the home not the replacement cost.  This house unfortunately had a pipe burst in the dead of winter causing tens of thousands of dollars in damages to the property and the insurance that was purchased was not enough to cover this unforeseen incident.  The owner doesn't have the monies to pay for all of the necessary repairs to make the home livable, so now the property is sitting, no income is being generated and the owner still has to pay for taxes and insurance on the property. 

We are not insurance experts, but we highly recommend speaking with one to ensure that you and your property has proper coverage.  

2. Mortgage

Many property owners finance their rental investments by borrowing from the bank and still owe years (if not decades) worth of monthly mortgage payments. When a rental property stays vacant for months on end, landlords end up paying the mortgage out of pocket, which can really add up.

With a steady income from tenants, it is much more manageable to make these payments and even start to pay off the mortgage earlier than expected. The sooner you can pay off your mortgage on your rental property, the sooner you can benefit from the profits of your investment. A vacant property does the exact opposite when it comes to this particular goal.

We recommend as an investor, don't depend on a tenant to pay your mortgage. Yes, that is the idea however having 6 months in reserves, can make a time when a major repair is needed, a vacancy or a tenant that is in default seem not so stressful. 

3. Cost of Maintenance

Of course, there are also expenses associated with keeping up the rental property. Even when the rental is vacant, there will be upkeep, tidy, organized, and ready to move into. Here are some examples of maintenance costs you could incur:

  • Cleaning/dusting
  • Plumbing and electrical maintenance
  • Preventative HVAC care, including air conditioning tune-ups.
  • Landscaping/gardening

In addition, there can be particular conditions based on local Homeowners Association (HOA) standards to maintain a particular appearance for the property.  Having a reserve in place to help ease the discomfort of these additional expenses during a vacancy will make a huge difference. 

4. Homeowner Association Fees

Homeowner Association Fees (HOAs) can be beneficial in many ways, but they frequently require members to pay monthly fees in order to maintain the neighborhood amenities and homes. When your rental home or unit is vacant, you still pay your HOA fees, which can be a significant expense if you do not have rental income to cover it.

5. Opportunity Cost

Even though the cost of possible lost income might not be immediately apparent, it represents a sizable hidden expense for you as a landlord or property owner. This potential loss of income is referred to in economics as an opportunity cost. In other words, the opportunity cost of not being able to earn rental income and the potential impact of poor choices made along the road.

For instance, you might have decided against marketing your unoccupied rental home because you thought the expense of marketing was too expensive. However, by choosing that course of action, you might have missed the opportunity to rent your property sooner rather than later. Your overall expenses during that time turned out to be substantially higher than the cost of the advertisement.

We all know that the best way to avoid these paying most of these costs ourselves is to have a tenant in place, paying rent so that it offsets some of those costs. What is the best way to get a tenant in place quickly? 

Work with a Professional Property Management Company to Fill Vacancies

Working with a qualified property management company is one approach to be sure that you are not spending too much time with vacant rentals that are costing you money. A property manager can assist in renting out your properties and locating reputable tenants who will stay longer.

Our TopFlight property management staff can assist you if you have rental vacancies and need help filling your properties in Clarksville, Oak Grove & Hopkinsville. We can streamline your rental process and assist you in avoiding the fees associated with an empty rental home or condo with our extensive property management services. Contact our property management team right away to discover more about our offerings!