Rental property costs

[k3am]

I'm trying to put together a list... This would be for renting out a home that is already owned (mom's when she moves into memory care - side note, I am not in favor of the idea, but putting together modeling either way). 

So far I've got:

Mortgage Payment
Property Management Fee (Estimate 10% or monthly rents)
Property Taxes
Insurance
Maintenance (Estimate 1% annually)
1 Month of vacancy (maybe this should be higher?)

Anything else I need to consider?

[chpmnk1015]

Not sure where you live, but maintenance for us would be higher than 1% of DH was not a handyman... Random things break and can be $$. We like to have 2 months vacancy covered.
Also, not sure what is in property management fee- we manage ours ourselves... but cleaning between tenents, etc.

[jewel]

Utilities, if you plan to cover any. Our city requires that certain utilities remain in the name of the owner (sewage and trash, here) so I cover those. Price out landlord insurance in your area. I’m in CA and getting any type of property insurance is getting difficult here, but landlord policies are even tougher. You may want to consider an umbrella policy too, with the increase in liability of having a rental.

Any monthly upkeep? Yard maintenance, pest control, etc.

General maintenance and repairs vary wildly. I’ve owned 2 rentals for over 15 years, and some years I have little or no repairs, sometimes a lot of small repairs, and some years I have a huge unexpected cost. In between tenants you may have to address paint, flooring, etc. but always plan on at least $300 for a deep clean.

If you rekey the house with the kwikset smart key, you can rekey between tenants for like $10, so that saves a lot.

[ellipses84]

I think your property management and maintenance costs may be a little low. Have you asked around to see what other people in the area are paying for property management? They typically hire licensed professionals for all work, unless they have a handyman on staff for small stuff and inspections. The maintenance might be ok in a normal year but you need to have a sinking fund for major things like roof replacement/ exterior painting. The first year may be more $$ on deferred maintenance items to get the house ready (like if there’s a fireplace your mom hasn’t used in a long time, I’d have it inspected and cleaned). Between tenants, houses are typically painted and carpet is replaced (you might be able to skip it between 2 tenants in 2 years). I highly recommend you provide some services, like an exterior exterminator at least 2x/yr. Even if there are appliances in place, decide if you want to be responsible for the optional ones. You could offer to leave a washer and dryer but put it in the lease that the tenant is responsible for maintenance/ replacement if you don’t want to deal with it in the future. As a renter, I think lawn/ pool maintenance is nice to include especially if you have someone really affordable who’s been doing it for your mom for years and you can include that in the rental cost.

[ellipses84]

I think your property management and maintenance costs may be a little low. Have you asked around to see what other people in the area are paying for property management? They typically hire licensed professionals for all work, unless they have a handyman on staff for small stuff and inspections. The maintenance might be ok in a normal year but you need to have a sinking fund for major things like roof replacement/ exterior painting. The first year may be more $$ on deferred maintenance items to get the house ready (like if there’s a fireplace your mom hasn’t used in a long time, I’d have it inspected and cleaned). Between tenants, houses are typically painted and carpet is replaced (you might be able to skip it between 2 tenants in 2 years but I’d estimate 2 months of vacancy). I highly recommend you provide some services, like an exterior exterminator at least 2x/yr. Even if there are appliances in place, decide if you want to be responsible for the optional ones. You could offer to leave a washer and dryer but put it in the lease that the tenant is responsible for maintenance/ replacement if you don’t want to deal with it in the future. As a renter, I think lawn/ pool maintenance is nice to include especially if you have someone really affordable who’s been doing it for your mom for years and you can include that in the rental cost.

[SusanBAnthony]

Agree with others that maintenance will be more expensive, depending on housing costs in your area I guess. A typical rental house in my area might cost 300-400k. 3k a year is enough for a few small problems, and not nearly enough for one big problem.

I'd also include the cost of a professional explaining the legalities in your state. Here you can't have a tenant be required to mow and remove snow. You have to separate it somehow - like rent = 2000$, plus you pay them 100$ a month for snow and mowing. In reality I'm sure that rule is broken a lot lolol but if you don't follow it and have a difficult tenant you could find yourself having to hire a company for snow and mowing for 300$ a month.

[k3am]

The maintenance estimate I was assuming 1% of the property value, so maybe $8k/year. Property is worth at least $800k. I based off a google estimate suggesting use 1%, but it may still be too low. I also expect that there's work we'd need to put into it before it can be rented out - all of the appliances need to be upgraded, etc, so there would (theoretically) be some time before needing to replace them. The roof was just replaced a couple years ago before she put in solar, both bathroom and kitchen are recently renovated (but she kept her shitty appliances for some reason). The carpets definitely need to be replaced and the majority of the interior needs to be repainted (the paint is fine, but... VERY awful colors in many of the rooms.) So basically all of these costs would happen whether we rent or sell (or we could chose to forgo any updates and target a lower price to compensate - I like to think we'd follow the listing agent's advice.)

The 10% property manager fee is based on estimates for her area. That would be $350/month. We actually pay a little less for the property manager on her other property. (The other property has been rented close to 20 years through a property management company. By the time I started handling that, it was already basically the Ron Popeil version of a rental - set it & forget it - but it's a different locale, a townhouse vs. a house, and college students vs. a family, which has had pretty low maintenance costs over the years)

I will definitely need to add in gardener and pest prevention. The combined monthly amount right now is $157. Thankfully snow is not an issue. She does have a wood stove, but fires are almost always prohibited and we can see about having my nephew weld it shut so tenants couldn't access.

I appreciate all the input, it definitely adds to my argument that renting it out is probably not the right course in this situation. (If we had a crystal ball that said mom was going to live XX months more, it would be easier to decide. In the short-term, the income would cover most of the gap between memory care fees and what insurance pays, but insurance will be depleted in 18 months - the notion of going through the effort of getting it ready to rent/rented, and then potentially needing to go month to month or kick those tenants out at the end of the lease in the relative short term in order to sell it just seems like a lot of hassle.)

[tealblue]

In my area, once a property stops being your primary home, property taxes go up. We have exemptions on houses for primary residents, if you have a mortgage, if a senior citizen lives there, etc. once you move out the exemptions are off and then your taxes will double or more.

So just be aware of local issues like that. Sounds like you are trying to prove it’s not feasible to rent it out, so hopefully an increase here will help.

[SusanBAnthony]

Nov 3, 2023 14:19:33 GMT -5 tealblue said:

In my area, once a property stops being your primary home, property taxes go up. We have exemptions on houses for primary residents, if you have a mortgage, if a senior citizen lives there, etc. once you move out the exemptions are off and then your taxes will double or more.

So just be aware of local issues like that. Sounds like you are trying to prove it’s not feasible to rent it out, so hopefully an increase here will help.

Same here.... I think it's called the homestead credit or something. Taxes roughly double.

[acuore]

Maybe this has already been covered, but Property Managers generally charge a lease origination fee that might be 1/2 first month’s rent (maybe more), as well as ongoing monthly fees. 

Insurance to cover a rental property will generally be more than insurance to cover the same owner-occupied house. 

I would strongly recommend a good umbrella policy if you’re going to be renting out property you own, or putting the property into an LLC, in which case you should account for legal fees. 

1% of property value for maintenance seems quite low to me, given that a single big repair (new A/C, exterior painting, roof, burst pipe, etc.) can cost a multiple of that. Also, keep in mind that renters will not generally take as good care of property as an owner would, so repairs/maintenance costs can be higher because of that. 

ETA: Being a landlord is a big pain. We have one house locally (it was my mom’s) that is rented out long term, and I hate it. Even with the PM and carefully vetted tenants, there have been issues. And frankly, it’s hard to make a significant profit on a rental property once you pay mortgage, all fees, PM company, and taxes. We make a profit, but it’s not huge, and there’s no mortgage on the house. We’re holding on to it for future personal use - otherwise I would sell in a heartbeat. JMO. 

[mae0111]

I agree with others about the property taxes of a rental. We own a rental in another state (for my MIL) and the taxes are literally double what they would be if she had just bought the house.

Also, in my state, landlords must pay for water, at least in multifamily units. I'm not sure about a freestanding SF home. My condo was a converted 3 family house and we only had one water meter, so the condo association paid the water bill.

As far as the maintenance fees, that's probably fine, but only you know the condition of the property. How old is the roof? Windows? Are the appliances pretty new, or will they need replacing pretty soon? Any plumbing issues? Will the be expenses involved in cleaning out the house to get it ready for renters? Painting? Patching holes? Fixing flooring?

[k3am]

I am likely going to be overruled on this one, at least for the short-term. 2/3 of us want to rent the property out, and the 2 in favor are also the 2 with POA.

My sister's initial thought process was just... "hey, we get $3500 in rent from the current rental, will likely get $3500 on this rental, she gets $2000 in SSI, $1000 in annuity income, plus her small pension, so that's $9k we can spend on mom's care, which cover's just about everything after insurance runs out!" and I was over here saying.. BUT BUT BUT.

I was able to put together a detailed spreadsheet with pretty conservative figures (everything except the house that isn't a current rental was pretty easy!) and show that the number is (unsurprisingly!) actually way less than that. But with her existing cash, the numbers still work. My mom did a really good job setting herself up, thankfully.

I am not local, so I won't be the one needing to deal with all the potential property management issues, but I've at least made my case.

[lpcats]

As far as maintenance costs are concerned, remember, tenants may not treat the property as well as they would treat it if they owned it. We had three tenants, the first two treated the property as their own and it was in pristine condition when they left. The third tenants apparently had some mental health issues appear during the pandemic and neglected basic cleaning and maintenance (the carpet smelled terrible because they apparently never vacuumed up the dog hair; we had to get a professional to clean the toilet because they left pee in it without flushing too often; speaking of toilets, there was one toilet in the house, three toilet seats, and none of them were actually installed on the toilet; and when they left, they left 3 garbage cans filled with garbage that the bears spilled all over the property). All that to say, depending on the tenants you get, you may have repair and cleaning costs that exceed the security deposit.

[waverly]

Our rental required an inspection through the municipality and there are certain code issues that need to be followed before you are able to rent it out.

It sounds like you know there will be updates needed but also look and see if there is a similar situation in that city and what needs to be done, for example wired smoke alarms come to mind.

Utilities are typically paid by the tenant but DH does provide the internet so that he can manage outages and the router. Telling the tenants that they are doing their own lawn and snow removal was new but they moved from an apartment to a SFH and it is legal in our state. We have a real estate attorney that handles the leases and that kind of stuff.

[k3am]

I am still very hopeful that they'll come around to the idea that they don't want to be landlords on this property. They think it's easy because the other property basically runs itself, but it's in a college town with housing issues, so we can be very selective on tenants, we don't have to put up with an BS, and they're not super picky about what they want or need in a unit. I haven't been inside the unit since I lived there (18 years ago. yikes), but that's on my list. I already know some basic maintenance on that has been overlooked that I've been getting on top of remotely via the property management company, but nothing big - they just finished their annual inspection, and we don't anticipate tenants turning over for another 2-3 years. (Most recently, a 25' tall tree that should never have been planted in the "back yard" that is only about 10'x10' big - I've since had them remove that the property management just wanted to trim, for example.)

My mom moves out in a week. The house will sit vacant for a while until we're able to get through all of her stuff before any decisions will be made. And it's a LOT - in her later years, she became a bit of a hoarder. I am pushing for them to talk to a real estate agent, property management company, and an attorney before any decisions are made.

Their biggest hang-up right now seems to be the capital gains tax hit we'll have to take when we sell. I think we just need to bite the bullet, but their money hang-ups are different from my money hang-ups and I am trying to be respectful of that and not just attempt to steamroll through the situation.

[mich1]

There are a lot more costs of having a rental than I realized. My sister has her house rented out. She started with a management company, but when they started ripping her off (like turning off the furnace so it entailed a maintenance call to see why there was no heat - when my sister had lived in the house the previous month and the furnace had been on and used, and they removed smoke detectors she had installed so she'd have to have them install them again), she fired them and decided to do it alone. She did not vet her management company well, and realizes it now.

Her insurance costs went up considerably. She had to have a license to rent a house in her city. She has to pay for yardwork. The house had to be inspected and things that were acceptable for an owner to live in weren't necessarily for a tenant. I know her property taxes went up too, but not sure if this is because it's not owner occupied.