How to Budget for Rental Property Expenses

Learn about the most common rental property expenses for landlords and how to prepare for and manage them effectively.

Last Updated
August 23, 2022
How to Budget for Rental Property Expenses

Landlords work hard to maintain their properties and manage their rental businesses. But taxes, mortgage payments, and maintenance costs add up over time and limit a rental property's profitability. Here are some of the most common rental property expenses and how landlords can budget for them.

6 common rental property expenses

1. Mortgage payments

Purchasing rental properties takes a significant financial outlay, so most investors use loans and mortgages. Unless you’re able to buy your property outright in cash, mortgage payments are likely your largest recurring expense as a landlord. In order to maintain profitability, landlords should aim to charge sufficiently high rent to cover at least the cost of your monthly mortgage payment. And with today’s rising interest rates, investors might also consider refinancing their mortgages to lock in low rates and protect their profits. 

2. Maintenance and repairs

55% of rental property owners in a recent report said that maintenance responsibilities are a major source of stress for them. Having reliable plumbers, electricians, and general contractors on hand can go a long way to mitigating this stress and is key to landlord success. There are different types of maintenance issues that landlords should budget for and should always be prepared for:

  • Emergency maintenance is required when something needs to be repaired or replaced on short notice. This can include repairs that are necessary to keep the property safe and comfortable such as resolving plumbing and electricity issues.
  • Preventative maintenance seeks to minimize sudden problems and keep a property in good working order at all times — for example, regular air conditioner servicing to remove dirt and lubricate moving parts.
  • Seasonal maintenance is conducted when the weather changes or at fixed intervals. This includes things like cleaning gutters and removing snow. 

When tenants leave, landlords should also tend to minor maintenance issues such as repainting and carpet cleaning before turning over the unit to a new tenant. 

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3. Utilities

Utility expenses include water, sewage, electricity, gas, and trash removal, typically paid on a monthly basis. Landlords can choose to pay for utilities and build the costs into rental rates, or pass these expenses on to their tenants. 

4. Property management

If investors are unable or choose not to manage their own rental properties, they can hire property managers to handle day-to-day tasks and tenant communication. Property management fees can range from 7-10% of your monthly rent, but the time and stress saved makes the cost more than worth it for many landlords. 

5. Insurance

Whether you’re a seasoned rental property owner or first-time investor, landlord insurance is essential. While it typically costs about 20% more than homeowners insurance, it protects your investment so you don't have to pay out of pocket in case of property damage or injury. Most standard landlord insurance policies include property and liability protection, plus additional coverages that cater to specific scenarios, such as wildfires or flooding.

6. Property taxes

If not properly accounted and planned for, taxes will cut into a rental property owner’s earnings. To ensure they aren’t overpaying, landlords should be aware of the tax deductions that they qualify for and keep their expenses organized throughout the year. Preparing for tax season early is always a good way to prevent unexpected tax bills. 

Tips for managing rental property expenses

Keep track of all rental property expenses

Landlords must keep track of the numerous expenses associated with owning and managing rental properties. However, paper receipts, invoices, and other documents tend to go missing and take space and time to manage. Modern financial software can help landlords consolidate these documents in a digital format to keep them conveniently on hand. 

Use past financial data to forecast future expenses

While every rental property is unique, there tends to be some predictability in annual expenses. When in doubt, look at costs from previous years for insight into how finances will likely fare in the future. When budgeting for a new rental property, landlords can also map their experiences from previous rentals to future investments. 

Never commingle funds

Landlords may be tempted to consolidate their personal and professional expenses and manage them from a single bank account. However, this can make it difficult to track which costs are directly related to rental properties. Having a separate landlord bank account for your rental property business will not only simplify income and expense tracking, but will protect your personal assets in the event of a lawsuit. 

Establish positive relationships

Landlords work with a wide variety of people when they manage their properties. From contractors and accountants to property managers and tenants, each stakeholder contributes to the landlord’s financial success as a rental property owner. Establishing positive relationships will make it easier to avoid disagreements, improve accountability, and make requests during difficult financial periods.

Conduct thorough tenant screening

As the demand for rental properties increases, landlords can make sure they find the best tenants for their properties. Tenant screening helps landlords find reliable renters and reduce turnover. Good tenants have a significant financial impact on a landlord’s success — they are more likely to pay on time, complete their lease, and take better care of the property. 

Simplify financial management with modern software

Rental properties can provide landlords with a steady revenue stream to supplement existing income. However, they must effectively manage the expenses that come with owning and managing rental property to see a healthy return on their investments. 

Effectively budgeting for rental property expenses requires landlords to manage their documentation, financial processes, and administrative systems. Landlords can use Azibo’s all-in-one financial platform to consolidate key processes such as rent collection, banking, expense management, tenant screening, bill pay, and more. 

To find out how Azibo can help landlords manage the financials of owning a rental property, learn more or sign up

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