There are some hidden costs involved in owning rental property, and you might not have factored them into your analysis. If you’re thinking about investing or renting out a home, make sure you remember to budget and plan for the following three things.
Property Management Seattle: Accurate Vacancy Rate
Many investors neglect to get an accurate vacancy rate for their properties. Your vacancy rate is the period of time when you are not renting out your property, nor are you receiving any rental income. If the property is vacant for one month in a 12 month period, that’s an 8.3 percent vacancy rate. In our industry, we see that you have to factor in between 5 percent and 8 percent per year for your vacancy rate. That’s a good industry standard.
There are a few ways to reduce your vacancy rate. For example, get a high-quality tenant who will stay in the property for a long time. At SJA Property Management, we start advertising properties about a month before the current tenants move out. This gives us a chance to have tenants move in shortly after the move-out date. That reduces our vacancy rate. So, if you’re self-managing your property, think about that as well.
Real Estate Investing: General Maintenance
Often, we see owners who don’t factor in the general maintenance on the property. These are maintenance costs that won’t be absorbed by the tenant. They are normal things you cannot charge the tenant for because they are part of the property’s normal wear and tear. You may need to fix a hinge on a cabinet, or a door handle will need to be fixed. Maybe you’ll need to do some light painting, or make small repairs to appliances. You should factor in around 4 to 5 percent of your gross rental income for general maintenance.
Redmond Property Management: Capital Expenses
The last thing that’s often missed is a budget for capital expenses. These are larger, big-ticket items that have a useful life. Perhaps it’s a roof, which will last for 25 or 30 years. A hot water heater has a life of about 10 to 15 years. Any major expenses that are improvements to the property are capital expenses. You need to plan for major plumbing or new flooring or a full exterior paint job.
Factor in between 4 and 5 percent for capital expenses, depending on the age of the house. So, if you combine general maintenance and capital expenditures, you should plan on spending about 8 percent of your rental income, depending on the age and condition of the property.
These are three hidden costs you definitely want to factor in when you’re evaluating a property and determining what your cash flow will be.
If you have any questions about these costs or property management in Seattle, please do not hesitate to contact us at SJA Property Management. We can tell you more, or share a rental investment calculator. SJA Property Management is an industry leader in the Puget Sound area including Redmond, Bellevue, Kirkland and Seattle.