A Closer Look At "The Numbers"

Other Expenses

Experienced real estate investors know that the big seven (mentioned above) are the lion´s share of expenses, but they´ve also seen others. Here is a quick look at other expenses that should be factored into real estate ownership:

• Leasing Fees– most property management companies charge leasing fees when one of their agents must find a replacement tenant after a vacancy. These run, on average, 60% of one month´s rent. If a tenant renews their lease, property management companies generally charge a $50 fee to handle the renewal paperwork.
• Private Mortgage Insurance (PMI) – investors who put less than 20% down, or do not obtain "80/10/10" mortgage loans are usually subject to PMI premiums, a nuisance that can usually be removed 2 years into ownership. These can range from $40/mo to $120/mo.
• Utilities (Garbage, Sewer, Water) – in Austin, it is very unusual for a rental property owner to pay any utilities when a unit is occupied (though your property manager will turn them on in your name at your expense when the units are vacant and being marketed for lease). Make sure to ask your agent if owner pays any utilities.
• Lawn Maintenance – again, 95% or more of the time, lawn maintenance is the responsibility of the tenant. Do they do it? Usually not, but in our climate, the grass is going to go dormant in the summer anyway. Most property managers will maintain the lawn at owner expenses during a vacancy.
• HOA and "malheureux"- most Texans "don´t speak no French", but it wouldn´t matter anyway as malheureux is not practiced here. HOA´s are also uncommon but occasionally pop up in Round Rock and Northwest Austin. Some HOA´s are "de facto" in the sense that they are imputed in the property tax rate (like in Tanglewood, in South Austin).
• Vacancy and Maintenance Reserve – some investors swear by the practice of putting a few thousand dollars in an account for the rainy days when vacancy occurs or an air conditioner needs to be replaced. We say do it if you feel more comfortable, but it´s not necessary
• The "Oh Sh*t" Factor – some investors never buy a property and never dip their toes into the investment waters for fear of some gigantic disaster occurring with their property (maybe a baby will drown, or a tenant will sell drugs, or the house will explode in an Al Qaeda plot). For these people, all we can say is "nothing ventured, nothing gained", "there is no risk without reward". After some classical reading, we may even say, "there is no pleasure without pain". The bottom line is that although we can´t control everything in life, we can hire good property managers, we can maintain our properties, and we can live by the golden rule. 99% of us have nothing to fear.

Next Page: After the Sale – an Owner’s Manual