You've crunched the numbers to figure out the costs of owning a rental property. However, there is a critical component that you've probably left out of your calculations: people.
People can be unpredictable and sometimes that unpredictability can cost you money. Here are 3 unexpected ways that hidden costs created by people can steal your rental property profits and what you can do about it.
1. Working With People Who Just Don't Care
There is a big difference between people who have your best interest at heart and those don't. When you work with people who you can't trust and just don't care about your business, it shows. Do not work with people who are only in it for the money.
Real estate is a long-term business. Becoming successful means that you have to have the right people working with you for years to come.
You need the following key people on your team:
A knowledgeable real estate agent who can locate investment properties in good areas.
A property management company focused on keeping vacancies down and rents paid on time. They shouldn't be eager to evict tenants just so they can charge you for the new tenant turnover.
A maintenance company you can trust to do the job right. Find maintenance companies that aren't going to charge you for unnecessary repairs.
A good real estate attorney. You need an attorney on your side because legal issues can arise unexpectedly.
A good tax accountant. A good accountant helps you structure your business so that it minimizes your tax liability and you'll be able to grow your business without handing over the majority of your profits to tax bills.
2. Maintenance Problems
Make sure that the roof and the furnace of the property that you are buying are in good working order with at least 15 years of functionality left. Have a trusted maintenance company look at them.
The biggest mistake that you can make when it comes to maintenance is not making the right decisions about when to replace the hot water heater or the plumbing and electrical.
So having a trusted maintenance company will help to make sure that you're getting good advice when it comes to the conditions of these appliances and you aren't going over budget on rehab if that is what is actually required.
3. Bad Tenants
You shouldn't have a love-hate relationship with your tenants (e.g. you love them on move-in day but every day after is a nightmare). Remember that your tenants are what allows you to have cash flow. So you want to create a happy relationship that makes them want to stay.
To avoid bad tenants, make sure to do the following when screening prospective tenants:
Always conduct a background check. You need to know if your tenants have a criminal history and if there are any issues only work with them if you feel comfortable.
If there is an eviction history, move on. If your prospective tenant has any kind of eviction on the record, don't proceed. Unless the eviction was wrongly reported, don't proceed.
Verify their income. You want to make sure that your tenants can afford three times the monthly rent in order to rent the property. They should also have enough of a buffer to afford the rent.
When it comes to people in your business, always take extra care. These hidden costs are the most likely to tank your profits and it will be hard for you to recover your business right away, or at all, if you continue to make these mistakes.