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Hidden Costs for Real Estate Investors

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Hidden Costs for Real Estate Investors

As you do your due diligence into a specific property to use as a rental, don’t overlook these hidden costs often associated with investment property ownership. They might be part and parcel of the next deal you make, and if so, you can adjust your strategy beforehand to accommodate them.

Hidden Costs for Real Estate Investors

Bad Tenants

It may not ever happen often, but if it does, the memory could last a long time. A bad tenant can cost you money, your personal energy, lots of time, and property repair. Although most of the time people are considerate of others’ properties, once in a while you may run into a tenant who disregards the basics of being a good tenant, starting with timely rent payments.

See also How to Avoid High Tenant Turnover

Lackluster Contractors

If you want to avoid contractors who slack off, don’t fulfill the contract, or do a bad job, stick with licensed contractors. Florida’s building and remodeling contractors have to be licensed and post insurance and bonds. Should something go wrong, you can file a complaint with the Department of Business and Professional Regulation (DDPR). The state will do its best to resolve the issues, but it takes time and there are no guarantees.

A property management group can help you minimize problems with contractors. These agencies offer a menu of services that streamlines rental property management, and they work with trusted, hand-selected contractors. They’ll also help you avoid underperforming professionals like lawyers and accountants.

Property Taxes

Florida has no income tax, and generates much its income for from property taxes. Florida has a law in place that caps tax increases at three percent per year that applies only to homeowners. Non-homesteaded properties have a cap of 10 percent per year.

This law was passed in 2008 to prevent rapidly escalating taxes for rental properties. Before committing to a property, ask the Realtors with whom you’re working to find the tax rates and any local or neighborhood issues that might increase them.

See also A Real Estate Investors’ Guide to Taxes

HOA Fees

More properties are subject to homeowner association (HOA) fees than ever, and it’s one area where your vote may not afford you much control over what the association charges. Before investing in a property, ask the seller to provide you with the most recent HOA financial reports.

Look for upcoming increases to their reserves. If you’re buying a townhome or condo, look over the condition of the property and the buildings. Roofs in need of repair, peeling paint, or a swimming pool that needs resurfacing can cost thousands. If money hasn’t been allocated for these projects, an increase to the HOA fees may be imminent.

Maintenance

Besides neighborhood costs folded into HOA fees, you’ll probably face maintenance costs for the property. Before purchasing a home, insist on an inspection executed by a licensed pro. Dig deeper if there are any issues related to wiring, plumbing, the structure, or the HVAC system.

Each of these systems could be costly to repair down the road, and you may be able to use it as an effective way to negotiate an offer. If you already own a property, you’ve probably discovered that prevention through timely maintenance costs a fraction of repairs or replacements.

Insurance

Insurers charge more for investment property than for homeowner policies. You may have shop around for a competitively priced policy.

Warranties

If you manage your own property, protect the warranties by following through with the maintenance and documentation the manufacturer requires. Losing out on the benefits of a warranty because of the lack maintenance or documentation for an appliance or even flooring could cost you.

Talk to one of our investment specialists to learn how JWB can help you earn passive income through long term real estate investing.

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