21 Rental Property Expenses (Buyer’s, Vacancy & Operating)
There are more than 20 rental property expenses to be aware of when you’re starting a rental property business, so include all of these in your budget before you start.
As well as obvious expenses like mortgage fees, there are some lesser-known but equally important fees like appraisal fees and accounting fees.
Buyer’s Expenses
Rental property buyer’s expenses are typically one-time expenses that come up during the buying process.
These costs are paid by the business owner, and they’re necessary in order to be able to purchase a property – the first step is starting a successful rental business.
Here are all the buyer’s expenses to consider.
1. Appraisal Fees
Paid By: Landlord
Deductible: Yes, when a property is bought as a business investment
Cost Range: $300-$750
Expense Type: Buyer’s Expense
An appraisal fee covers the cost of a professional appraiser, who will look at a home and estimate its market value. This fee typically costs upwards of $300, and although it’s not required, it’s advisable.
The appraisal protects you from paying too much for the house by giving you an accurate overview of how much it’s actually worth. To get a good return on investment, check the reviews of multiple appraisers before choosing one, or ask friends and family for recommendations.
2. Home Inspection
Paid By: Landlord
Deductible: Yes
Cost Range: $250-$1000
Expense Type: Buyer’s Expense
A home inspection involves paying for an expert inspector to check the status of the property. They’ll check whether it’s damaged or has any structural issues.
These inspections are not necessary, but it’s recommended to avoid paying for damage further down the line. Home inspections cost upwards of $250, but they tend to cost more for bigger houses.
There are a few different types of inspections you can order, and the more detailed ones cost more.
3. Broker Fees and Tenant Screening
Paid By: Landlord
Deductible: No
Cost Range: 5%-6% of the property’s price
Expense Type: Buyer’s Expense
Some of the often overlooked but important expenses for rental property are broker fees and tenant screening. Broker fees are the cost you pay to the brokerage for buying the property, and these fees are non-negotiable.
Tenant screening fees aren’t necessary, but you can pay them to screen your tenants to check for reliability and financial suitability going forward.
Doing so might save you hassle in the long run if you discover that your tenant is unruly or doesn’t have the means to pay rent.
4. Capital Improvements
Paid By: Landlord
Deductible: No
Cost Range: $100+
Expense Type: Buyer’s Expense
Capital improvements are expenses on rental property that relate to improving the property.
If you make changes to the property so you can rent it out for more, you can expect to pay anywhere from $100 upwards, depending on how much work you do.
These costs aren’t necessary, but they can allow you to make more money.
Take quotes from a variety of home improvement companies to get the best price, or ask around for recommendations.
5. Business Permits
Paid By: Landlord
Deductible: Yes
Cost Range: $100+
Expense Type: Buyer’s Expense
Business permits are needed in some states to allow the business to exist in the eyes of the government.
These permits are not avoidable and can cost anywhere from a few hundred to a few thousand dollars, depending on the area and your business. It’s worth checking which states require business permits before buying your rental property.
If you want to avoid paying for this cost for landlords, opt to buy a house in a state without permits.
6. Closing Costs
Paid By: Landlord
Deductible: Yes, as additions to your basis
Cost Range: Between 3% and 6% of the loan
Expense Type: Buyer’s Expense
If you’re buying your home with a mortgage, you’ll need to pay this property expense. This expense is paid to your loan provider in exchange for loan services.
It’s only avoidable if you don’t take out a loan for your mortgage and is usually between 3% and 6% of the total loan cost.
Bear in mind if you choose not to take a loan out for the property, you’ll need to save up a considerable amount of cash upfront.
Vacancy Expenses
Rental property vacancy expenses are the costs associated with listing your property on the market.
You’ll only need to pay them once for each set of tenants, but you’ll incur vacancy expenses every time you put your rental property back on the market between tenants.
Vacancy expenses, including marketing costs and leasing commissions.
7. Vacancy Costs
Paid By: Landlord
Deductible: No
Cost Range: Dependent on monthly rent
Expense Type: Vacancy Expense
Vacancy costs are rental property costs you incur when your rental property is empty, either between tenants or because you can’t find a new one. There’s a simple way to avoid vacancy costs: keep tenants in your home at all times.
Put your home on the market a long time before the next tenant moves out, and prioritize your marketing efforts. Give your tenants a shorter notice period so they can’t move out last minute and leave you without tenants.
8. Marketing and Advertising
Paid By: Landlord
Deductible: Yes, if you can show they’re necessary
Cost Range: $100-$2000
Expense Type: Vacancy Expense
This is one of the main recurring expense between tenants.
This landlord expense is necessary to attract new tenants to the rentals, but you can avoid paying for marketing if you rent to somebody you know or somebody recommended by friends, family, or a previous tenant.
You’ll also save money if you use social media instead of paying a marketing agency.
Depending on the type of demographic you’re targeting, you can save costs by printing a few flyers on putting them on local noticeboards.
9. Leasing Commissions
Paid By: Landlord
Deductible: Yes
Cost Range: A percentage based on the rental cost
Expense Type: Vacancy Expense
A leasing commission is a cost you pay to the broker as part of the cost of owning a rental property with tenants found by a real estate company.
It’s unavoidable if you use a real estate broker, and the budget will depend on the cost of the house because it’s based on a percentage of the overall cost. Factor leasing commissions into your budget for rental property as you’ll need to pay them between each tenant.
Operating Expenses
Rental property operating expenses are the recurring expenses related to renting out a property.
These costs include maintenance and repairs as well as the monthly expense of the mortgage and interest itself.
The costs can vary greatly depending on how much your mortgage is, and the general level of upkeep needed.
10. Mortgage Payment
Paid By: Landlord (with the profits from tenant’s payment)
Deductible: No
Cost Range: $100-$100,000, depending on the size and location of the property
Expense Type: Operating Expense
Unless you buy your house outright in cash, you’ll need to pay a monthly mortgage payment – the best-known rental expense.
This recurring expense can be reduced with a larger downpayment, and you can make a significant profit by charging your tenant an amount much larger than your mortgage payment.
You can shop around for different mortgage companies, too, to get the best value for money, or discuss with your broker how you can keep your mortgage cheap.
11. Mortgage Interest
Paid By: Landlord (with the profits from tenant’s payment)
Deductible: Yes
Cost Range: $100-$50,000
Expense Type: Operating Expense
This deductible rental expense is the interest you pay on your mortgage. You can avoid this by paying for your house with no mortgage or reducing your mortgage by putting down a larger downpayment. You can charge your tenant slightly more to cover payments.
Unlike a one-time expense, interest payments are recurring, so factor them into your monthly
cost of investment property. Unfortunately, interest payments also change as a result of financial markets, so bear in mind your mortgage might be more expensive in some years.
12. Homeowners Insurance
Paid By: Landlord
Deductible: Yes
Cost Range: Dependent on home and contents
Expense Type: Operating Expense
While not required by law, homeowners insurance is pretty much a non-negotiable cost of renting a house. This investment property expense will save you a ton of money in the long run if anything goes wrong with the property, so it’s definitely worth investing in.
It will also save you from possible financial loss if your tenants cause any serious damage to your home. The budget depends on your home, but you can expect to pay a few hundred or thousand dollars a year.
13. Property Taxes
Paid By: Landlord
Deductible: Yes
Cost Range: 0.2-5%, depending on where you live
Expense Type: Operating Expense
Property taxes are a necessary rental home expense, and the cost varies depending on which state you live in and the regulations for that area. Property tax can change year on year, too, so bear in mind you won’t necessarily pay the same amount forever.
It’s unavoidable but is tax deductible and will usually be a percentage of the cost of your home. To keep property tax costs low, buy a home in an area with lower taxes.
14. Property Management
Paid By: Landlord
Deductible: Yes, if a necessary part of the business
Cost Range: $160-$500 per month
Expense Type: Operating Expense
Property management costs are avoidable if you choose to manage the property yourself, but if the rental property is far from where you live, for example, you might want to factor in the rental property expense of a property manager.
Collate quotes from a few property management companies to find the cheapest, and check customer reviews for good value for money. If you can’t find one online, ask friends, family members, or other landlords for recommendations.
15. HOA Fees
Paid By: Landlord
Deductible: Yes
Cost Range: $100-$1000 per month
Expense Type: Operating Expense
HOA fees are fees paid to the homeowners association if you’re part of one. Being part of a homeowners association isn’t necessary, but it has benefits such as increased engagement with other landlords, amenities, community upkeep, and keeping property prices high.
It can be quite difficult to get out of paying your fees, so bear this in mind before you sign up. This investment might be more worthwhile for experience landlords or landlords with multiple properties.
16. Accounting Fees
Paid By: Landlord
Deductible: Yes
Cost Range: $100-$5000
Expense Type: Operating Expense
Having an accountant to operate your finances and tax returns isn’t necessary, but it’s hugely helpful if you can afford it.
Before committing to this rental operating expense, ask friends and family for any recommendations for an accountant who’s affordable and will help you get your finances in order.
Investing in people to help with operations can free up your time for further business endeavors, so make the most of the extra time to focus on marketing and increasing profits.
17. Depreciation
Paid By: Landlord
Deductible: Yes
Cost Range: Dependent on the state of the property
Expense Type: Operating Expense
Rental property depreciation is a process that deducts the costs of purchasing and improving parts of a rental property. Depreciation is a non-cash expense, and unfortunately, it’s an almost non-negotiable investment property cost.
Depreciation is less of an upfront cost and more of a loss of earnings based on the fact that properties naturally decline in standard due to wear and tear. The good news is that it’s usually tax deductible, so you won’t feel too much of a loss to earnings.
18. Legal Fees
Paid By: Landlord or tenant, depending on the situation
Deductible: Yes
Cost Range: Dependent on the case
Expense Type: Operating Expense
Legal fees usually occur when there’s an issue with the tenant that needs settling or is taken to court.
With good tenant screening and adherence to the rules and regulations, you shouldn’t need to budget for legal fees, but sometimes it’s a necessary rental property cost.
The good news is legal fees are generally tax deductible.
To avoid having to pay legal fees, maintain good communication with tenants and nip potential issues in the bud before they go further.
19. Utilities
Paid By: Tenant (in most cases)
Deductible: No
Cost Range: $50-$1000 per month (for the tenant)
Expense Type: Operating Expense
Unless you want to add utilities as part of the monthly rental cost to attract a tenant, tenants usually pay this expense.
Tenants can usually organize payment of these expenses themselves, so you wouldn’t be expected to intervene unless there was a problem.
You shouldn’t need to factor in utilities as a cost of rental property unless the property is vacant.
In the case of paying utility bills temporarily, shop around with various companies to see which one offers the best value for money.
Expenses for a renter could include:
- Electricity
- Gas
- Heating oil
- Water and Sewer
- Trash and Recycling
20. Maintenance
Paid By: Landlord
Deductible: Yes
Cost Range: $100-$10,000 per year
Expense Type: Operating Expense
Properties naturally come with wear and tear, so maintenance costs will be needed throughout the year. To avoid paying excessive amounts for real estate expenses, work with contractors that offer value for money or are recommended by other landlords.
Pay a visit to the property regularly so you can keep an eye on any issues that need fixing and fix them before they become a more significant problem. Just make sure to inform your tenants before you show up.
Rental property expense categories include:
- Landscaping (and snow removal)
- Pool cleaning, chemicals, and maintenance
- Pest control and treatment
- HVAC filters and inspections
- Smoke detector batteries, light bulbs, janitorial Items
- Tune-ups on lawnmowers, chain saws, leaf blowers
- Painting and plastering
21. Repairs
Paid By: Landlord
Deductible: Yes
Cost Range: $100-$50,000 per year
Expense Type: Operating Expense
Repairs are a necessary part of being a landlord, but you can avoid having to do repairs too regularly. Keep this rental property cost to a minimum by keeping on top of maintenance to avoid problems with the building or appliances.
General wear and tear is a given, but check appliances regularly to avoid leaks and electrical failures.
If your tenants report a problem, have the numbers of local companies in your contacts list so you can solve the issue as soon as possible.
Common repair costs include:
- Emergency and routine repairs
- Plumbing leaks, roof, and routine repairs for normal wear and tear, etc.
