Even an experienced St. Louis rental property owner can easily be caught off-guard by a surprise expense or a hidden cost that wasn’t expected when they invested in a property.
No one likes surprises, and financial surprises are especially irksome.
Make it a policy to expect the unexpected when you’re budgeting for your real estate investments. In fact, we recommend that you over-budget, if possible. Extra planning will give you a bit of a buffer and also protect you from the financial shock that often comes with unexpected maintenance, a reduction in cash flow, and higher insurance or tax bills.
Automate Your Fixed Expenses
You know you’re going to have to pay your mortgage every month, just like you’re going to have to pay your insurance, taxes, property management fees, and other professional fees. You might have landscaping or pool service costs. HOA dues are known expenses and pretty much the same every month or quarter.
There won’t be any surprises with fixed expenses, but you do need to know what they are and how they impact your cash flow. If you can automate the payment of these fixed costs, you’ll find that you have a clear picture of the funds available for those hidden costs you may not see coming.
Variable Expenses and a Reserve Account
Hidden costs are often variable. Vacancy, for example, can cost you nothing or it can cost you thousands of dollars in a given year. Maintenance costs will almost always vary, especially emergency repairs that are needed right away.
We recommend budgeting at least five or 10 percent of your monthly rent for maintenance, depending on the age of your home and its condition. If you can put that away in a reserve account, you’ll be better prepared to face hidden costs such as water heater explosions, plumbing leaks, or appliance breakdowns.
Even if you don’t use that reserve every month, having it will prevent financial shortfalls when there’s a plumbing issue or a new roof that’s needed.
Wear and Tear can be a Hidden Cost
Normal wear and tear is part of every tenancy. There are several expenses to prepare for and things you can do to minimize those costs, including:
- Expect to paint every three to four years, especially in high traffic areas.
- Require your renters to have the carpets professionally cleaned every year and before they move out.
- Look for drippy faucets, loose handles and hinges, deck steps, and rails.
- Make sure all windows open easily and schedule gutter cleaning in the spring and fall.
- Require that tenants change furnace filters at least every three months.
- Wood rot can happen in St. Louis and is easy to avoid if checked annually.
These wear and tear items cannot be deducted from a tenant’s security deposit. It’s your responsibility as a landlord, and you’ll need to be prepared financially.
Increasing Rental Property Expenses
Rising expenses will often take investors by surprise. There’s going to be inflation, and you should budget for a three percent increase in the cost of goods and services that pertain to your St. Louis rental property. A rental increase will help offset that, so make sure your calculations reflect a higher rent when you’re able to raise it.
We recommend taking a look at your short and long-term budget quarterly to make sure you’re on track and not missing any big expenses that may be heading your way.
Even with the hidden costs, we’ve discussed, investing in St. Louis real estate makes sense financially. If you have any questions about how to minimize these costs or you need help with St. Louis property management, please contact us at Amoso Properties.
