Owning a rental property, of course, comes with costs. And, you think you’ve budgeted for everything once you’ve closed the deal and you begin looking for tenants. You’ve likely calculated the marketing costs and budgeted for what you’ll spend to screen tenants and make the property rent-ready.
There will always be minor maintenance issues you’ll have to keep up with from time to time, and you know that. You also know what your mortgage costs will be, and you’ve probably planned for your tax and insurance payments.
The good news is this: you’re financially prepared.
The bad news is this: you’ve probably not accounted for every cost that will come along as you lease, manage, and maintain your investment property.
Encountering surprise expenses when you’re renting out a property in Las Vegas can be unpleasant. If you’ve created a careful budget, it only takes one unexpected maintenance bill or longer-than-planned vacancy to knock you off track.
There are inevitable costs to renting out a property, and not all of them will be obvious to you.
Let’s take a look at some of the most common expenses that tend to surprise property owners. We’ll also give you some tips on how to plan for them (even if they’re unexpected).
Inflation is an Unexpected Cost. Especially Recently.
There are some benefits to the inflation we’ve been grappling with since the worst of the pandemic ended. Thanks to rising costs across the economic spectrum, you are likely collecting more rent than you were a year or two ago.
High rents are great. But, the inflation that’s contributing to those higher rental values can also be damaging to your bottom line. There are higher expenses. Most property owners did not plan or budget for inflation.
The cost of doing business is higher. Insurance prices are going up, property taxes are higher, and you’re paying more for maintenance, landscaping, cleaning, and professional services.
Make some space in your budget for inflation. You may need to increase what you have set aside for those monthly bills and necessary services.
Unexpected Vacancy Costs and Las Vegas Rental Properties
Las Vegas has a fairly reliable tenant pool. But, there will still be vacant periods to contend with. This is not always easy to anticipate, and the cost is often higher than expected.
Vacancy hurts because it leads to other costs. Having an empty home for one week can cost you several hundred dollars. When your rental property is vacant for two weeks, you start thinking about the thousands of dollars you’re losing in rent.
Keeping your rental home occupied 100 percent of the time is rarely possible, unless your tenant retention is off the charts and you manage to keep the same tenant for the entire lifespan of your investment. Budget for this eventual expense. Even with outstanding retention and strategic marketing, your Las Vegas rental home will have periods of vacancy.
Vacancy’s sibling is turnover.
This is another expense that you might understand looms out there, but when it actually shows up in your accounting, you’re surprised at what it really costs.
Unless a tenant has broken a lease and moved out unexpectedly, you have plenty of time to plan for your turnover period and the loss of rent that you’ll suffer while the home is empty between two tenants.
But, you never know how much you’ll have to spend to get the property ready for a new resident.
You might be surprised to find that turnover costs are more expensive than the vacancy, especially now with maintenance and repairs costing more than they once did. Even repainting the home will require an investment.
When you have one tenant moving out and another moving in, you’ll have to invest in cleaning and preparing the property, and then you’ll have to advertise and market it. This adds up.
Plan on having a full month of vacancy between tenants. Even if the vacancy isn’t that long, by budgeting for that time period, you will have more flexibility when you’re making updates and upgrades.
Problematic Tenants Cost Money
Good tenants will help you earn more, and bad tenants, as you may have guessed – only cost you money.
No one places a bad tenant intentionally. However, you cannot completely predict the behavior of every resident you place. When you have a robust screening process in place and you try your best to establish a good relationship with your tenants, those costs associated with tenants are always unexpected. You might be blindsided by a tenant breaking a lease or causing property damage. Late rent will set you back financially and require you to spend more time than you’d like chasing down late payments.
Maybe you’ll have a tenant who stops paying rent altogether. You’ll need to file for eviction, and that’s going to come with costs, too. When a tenant is not performing the way you expect them to, you’ll find yourself spending more time and money than you’d like on lawyers, court fees, evictions, maintenance, cleaning, and renovations.
Every rental property owner fears having to evict a tenant. And, we believe that eviction should always be a last resort.
Even if you have a difficult tenant who is not paying rent, there may be a way to get them to move out before you have to take them to court. This will save you from the shock of what it actually costs to evict your tenant.
Because evictions are always an unexpected cost. And, you’ll end up paying for the eviction even if you’re successful in removing the tenant from your property.
You can find your income compromised even without the eviction going to court. You might have a tenant who does not pay rent for two months and after all your notices and the official filing for eviction, the tenant will move out before it goes to court. That’s still a lot of rent you haven’t been able to collect, and there’s no telling what the property will look like when you get inside.
Deferred Maintenance in Las Vegas Rental Homes
Budgeting for maintenance is one of the first things you’ll do once you decide to invest in Las Vegas real estate. You’ll decide how much of a reserve you need based on your property’s age, condition, and requirements.
Understanding what you’ll pay for routine repairs and preventative maintenance is easy.
Planning for emergency repairs, however, can be a challenge. You don’t know when that water heater will burst. You don’t know that a flash flood will cause water damage.
Even more expensive than emergency maintenance is deferred maintenance.
Don’t put off those repairs. When a tenant reports that something is wrong, evaluate it right away. It doesn’t take long for a slow drip to become a plumbing disaster. Invest in routine walk throughs and service calls. Have your HVAC system checked, your roof looked at, and your windows upgraded to hurricane-proof quality panes.
These investments will save you money in the long term. There will be fewer emergency repairs called in and lower expenses overall.
Paying for Unexpected Rental Property Costs
Preparing for the costs you cannot expect is one thing.
How do you pay for them?
1.Over-budget. This can be difficult when you’re looking for ways to earn and bank as much as you can. Saving is hard. But, when you set aside more money than you’re likely to need, you will rarely be surprised by how much something costs. Saving 10 percent of your monthly rental income for maintenance needs, for example, will help you set up a nice reserve. You probably won’t use that money every month. But, you’ll have it available when an unexpected repair shows up. You can use it as a buffer if a vacancy is longer than you expected.
2.Consider investing in property management. This can be a huge resource when you’re trying to absorb unexpected costs. Las Vegas property managers anticipate everything. We have been managing homes long enough to know when things in your property will need to be repaired or replaced. We know how to distinguish a bad tenant from a good tenant. We have a process in place for evictions, and they can help you budget for inflation.
3.Finally, try to understand the life expectancy of small things like window coverings and large things like your roof or your HVAC system. When you know how long you can rely on a specific function to last, you can budget for those repairs and replacements over time. With any system or appliance, you know you’re getting lucky if 10 years have come and gone and you haven’t needed to repair or replace it yet. You don’t want to rely on luck, however. Make a budget.
Providing a safe, habitable home that tenants are eager to rent is more expensive than it sometimes appears to be. We can help you manage those unexpected costs and reduce what you’re spending on surprise bills.
Please contact us at New West Property Management. Our team expertly manages residential rental homes in Las Vegas and throughout Clark County, including Henderson and North Las Vegas.