Cost of Owning an Investment Property

Investing in real estate is certainly appealing, offering the promise of monthly cash flow. But in addition to long-term appreciation, investment properties have a number of costs that are both visible and hidden. For this reason, you want to know the actual cost of owning an investment property before signing on the dotted line.

Before you start searching for rental properties, we recommend you run the numbers to understand whether investing in a rental property will be profitable.

Here are some tips to help you identify the cost of owning an investment property.

7 Cost Considerations for Rental Property Ownership

Down payment and interest rate

Currently interest rates are lower than normal. However, lenders normally require a minimum of 20 percent down payment and 0.75 percent higher interest rate. For three-to-four unit properties, a minimum of 25 percent down payment is required.

Property taxes

Depending on where you purchase your property, property taxes can add significantly to the property cost. Be sure to contact the county directly to ensure that the taxes listed on the Multiple Listing Service are accurate.

Homeowners insurance

Homeowners insurance can vary significantly depending on the type of investment property you are thinking about purchasing. Be sure to discuss rates with an insurance representative prior to entering a contract on the property.

Maintenance

We've found it's a good rule of thumb to reserve 10 to 12 months of rent per property to cover maintenance and vacancies costs. To plan for this, it's a good idea to budget 10 to 15 percent of the annual property rent for maintenance and upkeep of the property.

Utilities

While utilities such as gas and electric are often the responsibility of the tenant, some services, like water and sewer, might be included in the rent. If you plan to include utilities in your rental price, get an estimate from the utility companies of the average monthly usage so you can recover that expense in your monthly rates.

Vacancy allowance

We advise allowing one to two months of vacancy between renters. But the amount you should retain to support this depends on your market. Undeniably, it's essential to understand your market to know how long rental properties typically stay on the market. This helps set your vacancy expectations in your area.

Hiring an Investment Management company

Now that you have tallied up the major expenses of owning an investment property, the last step is to invest in a good Property Manager. We would love to discuss with you how you will see a consistent return on investment by hiring D&A, Inc. We’ve been managing investment properties in Corvallis, Albany, and Philomath for 40 years! It is our specialty.