When you first enter the field of property management, you usually need to calculate a list of expenses that’s as long as your arm. There are property taxes to manage, maintenance costs to consider, and lots of setup fees that add up. Chances are, no matter how diligent you may be, some expenses will fall through the cracks of your planning.
Today, we want to talk about some of the expenses that property managers forget to consider until they appear later on in the process. These can be pretty big expenses, so if you can, start planning to tackle them now. It’ll make the process of property management much simpler and more affordable in the long-run.
Let’s go over the big ones to keep on your radar.
Advertising and Marketing Spending
When you first start renting a property, or when you’re dealing with vacancies, finding a tenant is the first important aspect of the business. Unfortunately, reliable renters won’t magically flock to a new property. They need to be advertised to, and that costs money.
Before you launch your new rental property, consider which advertising methods you will rely on and how much they will cost. Whether you’re purchasing ads in the local newspaper or paying for marketing services online, those payments will need to be a part of your initial budget.
Many modern apartment hunters use rental websites to find their next home. They may also perform simple Google searches online, so property managers will need to ensure that their Google My Business listings are up to par. The more difficult it is for tenants to find your rental property online, the less likely they are to apply for residency.
Homeowner Association Expenses
Depending on the type(s) of property you own (and will be renting to tenants), you may have relevant homeowner association (HOA) expenses that need to be included in your budgeting. If you know you’ll be facing a hefty fee, you may want to adjust your tenants’ rent accordingly to compensate for the high HOA.
HOA fees can vary significantly depending on where you live, so you’ll need to do research ahead of time in order to budget accurately. For instance, in the Dallas area of Texas, the average HOA annual cost is about $2,500. In contrast, Seattle Property Management companies could face HOAs that cost up to $500/month!
Wondering which kind of properties can be a part of a homeowner association?
Typically, you’ll face an HOA if you own a condominium, a home in a neighborhood, or a single-family home somewhere. Some good news: if you own a condominium, the HOA fees should help cover building maintenance and improvements if necessary.
Accounting and Finance Fees
As with any new business, managing properties comes with a great deal of financial responsibility. You’ll need to keep diligent track of all of your expenses, profits, and tenants’ payments. Whether you’re going to do this yourself or hire a bookkeeper or accountant, that’s an expense you need to consider.
Another thing you’ll need to consider is how you’ll handle vacancies in your property. If you budget to have a tenant every single month of the year, you might be in for a nasty surprise when you unexpectedly face tenant vacancies. Learn to leave extra funds in your budget in case you have vacancies for part of the year.
Costs of Screening Potential Tenants
Although it doesn’t cost too much to screen your potential tenants, every expense should be planned for, including the fees that come with background checks and other references. Typically, a tenant screening will set you back between $15 and $40 per applicant.
This might not seem like much, but it depends on the kind of rental property you’re managing. If you’re
dealing with hundreds of different applicants every year, these screening fees could add up quickly and make up a substantial part of your budget.
You might balk at the concept of spending thousands on screening tenants, but in the long run, you’ll save money by checking your applicants out. If you’re forced to deal with eviction costs and excessive repair fees, you could easily incur thousands of dollars in extra fees.
Paying for Pest Control Services
Just one bad instance of a pest invasion can set you back by $500 or more. Imagine what could happen if pests ran rampant throughout an apartment complex or condominiums. Termites, ants, cockroaches, mice, and other pests could cause plenty of damage if left untreated.
Most apartment complexes work pest control service fees into their tenants’ rent to help cover the costs of regular inspections and prevention methods. This might just be an extra $10 to $20 on your renters’ monthly charges, but it can help offset your costs immensely.
The last thing you want to deal with is a full-blown infestation. Not only will that cost you thousands of dollars to deal with, but it could lead to an abundance of bad reviews online, which will drive your revenue down even further.
Think about it: if you were reading a review on an apartment complex, would the mention of a cockroach infestation make you want to live there?
Maintaining Your Rental’s Landscaping
A huge part of your rental’s appeal to potential tenants is the landscaping and maintenance. Overgrown lawns, empty flower beds, and unkempt shrubbery will steer people away from your property quickly.
Although you might think of landscaping maintenance as a minor inconvenience, it’s something you’ll deal with on a monthly (if not weekly) basis. Therefore, you could spend a large chunk of your budget on simple landscaping expenses every month. Even if you plan to mow the lawn yourself, you’ll need to account for the time you’ll spend doing that, the equipment you’ll need, and the frequency of the chore.
Paying Your Income Taxes
Many property managers get so excited about turning a profit with their rental companies that they forget part of their revenue will go toward taxes. To avoid facing a big debt with the government at the end of the year, start estimating your tax amounts ahead of time. Set aside enough money to deal with any unexpected fees and debts when the end of the year rolls around.
Remember: the more profitable your rental business becomes, the more you will be charged for taxes. Stay on top of things so that you aren’t surprised by your financial situation come tax season.
You might not be able to foresee all of the expenses you’ll encounter as a property manager, but the more costs you can anticipate ahead of time, the better. Take note of these commonly overlooked fees so that you can budget accurately and feel financially prepared. Your planning will go a long way toward establishing trust with your tenants and making your property successful.