Being a landlord can be extremely profitable. It’s one of the most popular and lucrative investment opportunities available. A lot of people have found it to be one of the best ways to supplement their current income and provide them with savings or extra money for luxuries. The one thing that plenty of people ignore is the cost involved in renting out a property. Of course, there’s the cost of the mortgage itself, though that’s something people usually consider. But there are plenty of other hidden costs that far too many prospective landlords ignore. And when they ignore those costs, they end up getting into financial trouble that can cause serious problems for both them and their tenants. With that in mind, here are some of the hidden costs of being a landlord.
Tax, fees and insurance
It’s astonishing just how many landlords seem to forget about these things. Part of this is because they are sort of invisible. They are added costs onto renting out a property that often don’t factor directly into the property itself. It’s a very good idea to seek legal advice when becoming a landlord, and that will be something you need to budget for. You may also end up paying more than the standard rate in the event of having to evict a tenant. Similarly, you will find that your insurance rates will have to change when you go from being a “homeowner” to being an “investor”. You’ll need a new policy which will often be more expensive. Tax is also something far too many landlords ignore, especially if the time comes to sell the property. You should use a capital gains tax calculator to figure out what your net profit will be, rather than just assuming that you will profit from the full price of the property upon sale.
In an ideal world, your tenants would move in, and then you could just sit back and watch the money roll in every month. Sadly, we don’t live in an ideal world. Your tenants will rely on you to maintain the property. This means that you need to have it ready for them to move in, which involves making sure it’s safe, secure, clean and freshly painted. And once they are moved in you need to be ready to deal with repairs on white goods, structural repairs and possibly even garden maintenance. You can combat some of the costs of this maintenance by doing a lot of it yourself, but if you’re not really the DIY type, then you may have to hire someone else to do it, which can be pretty expensive. Even the best tenants in the best property will occasionally have a problem that will be your responsibility. So make sure that you’ve set aside appropriate amounts of both time and money to deal with any of these problems as they come up. It’s also a good idea to check in with the tenants regularly so that you don’t have to only deal with things once they’ve gone wrong.
*This is a contributed post. Family friendly posts are welcome.