If you’re thinking about investing in rental property, you’re probably doing your due diligence to make sure it’s right for you. Likely, one step in that due diligence is figuring out what expenses you’ll pay. Smart! A lot of the beginner real estate investor overlook the costs associated with rental property. To help you, we’ve created this list of 4 costs associated with rental property in Pensacola…
When it comes to investing in rental properties, it’s easy to think of the cash flowing income. But remember that your profit doesn’t come from the gross rent but what’s left over after your expenses. For that reason, here are 4 costs associated with rental property in Pensacola that you should be aware of…
4 Costs Associated With Rental Property In Pensacola
#1. Taxes And Fees
One of the costs you’ll have is the property tax you’ll pay, which could include property tax, school tax, municipal taxes, waste and recycling tax, HOA fees, as well as any potential income tax on your rental income. We can’t give you an exact amount that you’ll pay (it depends on a number of factors) but you should be aware of what the taxes will be.
The thing that a lot of new real estate investors perhaps don’t know in the long run, your property taxes increases due the value of the property increases. What you’re paying now and when you buy the property will be more in a few years. While when you have one property things don’t seem bad, a few hundred dollars a year more right? But when you have several properties, things starts to get a little more interesting.
With that being said, real estate investing is the best investing you can get your hands on. It’s the most secure investing out there. But always calculate your expenses to keep that cash flow flowing.
#2. Insurance
Rental property is an asset and you’ll want to make sure that you and your asset is protected. For that reason, you should insure it. Make sure you insure the property and structure against damage (such as fire), as well as have some liability insurance in case your tenant or a visitor hurts themselves. Your tenant should also have insurance on their belongings.
The last few years, the property insurance went sky rocket in Florida due to the continuous storms and hurricanes we get here. Just about every year we get warnings about some hurricanes at the gulf staring at Florida state. The insurance prices doubled and tripled from just 5 or even 3 years ago.
#3. Upkeep
Another cost, which may be harder to estimate ahead of time, is upkeep costs. This includes things like the costs to maintain and repair the furnace, hot water tank, roof, and the plumbing and electrical systems in the house. Upkeep costs would be incurred whether you live in the house or your rent it out, and they’re important to ensure that your rental property is a nice place to live.
When you have bad tenants in Pensacola or anywhere, it’s important to know the damages they might cause for your rental property, Causing you to have a house with a lot of repairs. Some won’t pay the rant on time, and some won’t pay the rent at all. This is what causing some Florida real estate investors to become tired landlords in Pensacola.
Prices could go higher at times than others. For example, during the covid period. We couldn’t find contractors or handmen to do the jobs we were hiring for because of 2 reasons. 1) The real estate business and construction was booming and you couldn’t get a hold of someone that is willing to do the job for you. Most weren’t even willing to answer their phones! And 2) Most of people were getting paid from the government without them have to go to work, which maid it worse.
But what this is have to do with the maintenance costs you might ask?
Well, when there’s a lot of demand and not enough supply, and the supply here is the contractors/handymen, then the prices were too expensive and ridiculous. Contractors and handymen were charging double and triple the prices they normally charge. It’s the supply and demand rule with a hind of unethical business practices.
#4. Time
This last cost might surprise you but it’s the cost of owning a rental and dealing with tenants. You’ll need to spend some time finding a tenant, doing a background check, making sure they pay their rent on time, and occasionally checking on the property. And, since “time is money”, there is a cost implication to you. It can be minimized, though, with an investment into a good property and a property management team.
At first, you need to manage your properties yourself, but down the road, and having too many rentals, you need to have a real estate management company to manage your rentals.
Summary
Before you let this list scare you away, remember: every investment has costs… whether it’s the transaction fees or management fees charged by your stockbroker or mutual fund manager, or whether it’s these 4 costs associated with rental property in Pensacola. What’s important for you to decide is whether the benefits far outweigh the costs. And when it comes to rental property, we believe they do.