Many property investors struggle with investment rental property because they do not know how to plan for the unexpected.
There are several other factors that real estate investors must consider when buying investment property.
In order to make a sound investment decision, all the risk factors must be identified, measured and planned for.
Especially when it comes to managing the income property’s operating expenses.
Vacancy Factor
One aspect of rental property investing that many struggling real estate investors fail to consider is the property’s vacancy factor.
While I think its healthy to have a positive outlook on life, to think that your investment property will be occupied 100% of the time is
nothing more than a pipe dream.
There will be times when your residential investment property will be vacant. Just factor this into your investment decision and it will not become an unexpected surprise.
Generally, you should assume that your property will have an average 10% vacancy rate. So a good idea here is to have 3-6 months in cash reserves to cover unexpected expenses – especially tenant vacancies.
Tenant Turnover
The cost of tenant turnover should also be considered when conducting your due diligence. This is often a big surprise to many new landlords who assume that tenants never move and will stay in the house or apartment for years to come.
Tenants are on the move much more than homeowners and the expenses that go along with getting a vacant unit ready (to re-rent) is just a fact
of life in the rental property investment business.
You can expect to pay for the advertising needed to attract a new tenant. You can also expect to shell out a few coins to repair, repaint and clean the rental unit.
Just chalk these expenses up as a cost of doing business.
The Cost Of Insurance
Of course, the cost of insurance should also be taken into consideration. Keep in mind that insurance premiums for investment properties is usually higher than an owner occupied property.
Experienced property investors make sure they obtain a quote from a reputable agent. Make sure you buy an adequate level of property insurance.
This operating expense is very predictable and easy to manage.
Utility Expenses
Utility expenses are frequently underestimated.
Experienced property investors find out exactly what the utility expenses will be in advance – you should do the same.
If you’re considering a multi-unit building, make sure you find out if the utility meters are separate and assigned to each individual unit.
If the utility meters are in fact separate, the tenant incurs this cost.
But if there’s only one meter, guess who has to pay for all the utilities?
The owner does.
Make sure you verify this cost before you go any further in your review of the investment property’s operating expenses.
Finally, take into consideration the costs of property management if you will not be managing the property yourself.
