Am I Missing Some Rental Expenses?
I'm looking at purchasing my first rental, a duplex that currently has tennents and gross rent total of $1070/month. Principal and interest will be $415, I'm estimating $125/month in taxes (a 66% increase over last year just to be conservative with how fubar our taxes are here), $50/ mo insurance (pur. price/2400 method I saw mentioned comes out to $35) Water & sewer will be $60 or less. Trash is included in the prop tax. I'll take care of the yardwork myself (I'm an avid gardener so the yard clippings will be much welcomed in my compost pile) and I'll also manage the property myself.
I keep thinking that I am overlooking something to have $400+ cash flow a month-I realize that I haven't put a value for vacancy and repairs but I figure those should be taken care of by the reserve built up from banking $400+ a month.
What expenses are missing from my calculations? The people who are sellign the duplex is an LLC so I have my suspicions that I'm missing something here if they're selling a much higher cash flow (asking $25k more than they paid 5 years ago)
Thanks in advance
Bob
If you are planning to use lawyer to draft your leases and advise you on the landlord tenant law whenever a question arises, you might want to allocate some funds to legal expenses.
Does your area require a rental unit license? How much is the annual license fee?
How about credit checks and criminal background checks on your applicants? Do you have a service to do this, and is it a subscription or pay-as-you-go service?
Cleaning, maintenance, repair, and supplies costs can always be paid from your cash reserves as needed, but how about the major systems such as roof and HVAC? What if you need to replace the carpet throughout? Might be a good idea to make a monthly contribution to a replacement account to handle these large (but infrequent) costs.
1. I'm assuming that you confirmed that heat & electric are pd by tenants?
2. If your county bases their assessment on your new purchase price, property taxes may go up. You might want to see what the property is currently being assessed at.
3. Any snow removal?
4. There will always be unexpected expenses. Unfortunately these can be expensive since they could be major and need to be fixed immediately if the units are occupied. Have you checked the age of the furnace?
5. Depending on your depreciation and repairs, you may show net income and have to pay some income taxes.