Converting your Tucson home into a rental property can be an incredibly profitable venture. The demand for rental accommodations has skyrocketed all across the country. This means you have higher chances of finding reliable tenants and basking in a stable passive income. Plus, your home will appreciate over time.
Despite the clear financial benefits, owning and managing a rental property also requires a big investment. Even if you’re renting out a property you already own, you’ll have to spend time and money on renovating, maintaining, and advertising it, among other things.
These operational expenses can quickly accrue and dampen your earrings. That’s why it’s important to include them in your budget.
In this article, the team at Foothills Properties will list the most common costs that most landlords don’t notice they’re accruing. We’ll also tell you how to minimize the financial burden of these expenses and ensure the long-term profitability of your rental.
1. Mortgage Payments
Mortgages are one of the most popular ways to finance real estate investments. After all, they allow the use of leverage to grow your portfolio. The only downside of getting a mortgage loan is that the monthly payments can seriously diminish your rental income.
If you’ve got a variable-rate mortgage, your payments will frequently increase along with the interest rates. To ensure your mortgage payments don’t eat up your profits, you must price your rental appropriately.
Before listing your Tucson home for rent, you must sit down and calculate your operational expenses, including your mortgage and tax payments. This way, you’ll know how much you’ll have to charge tenants to keep your rental business running and earn a steady profit.
2. Utilities
In some states, like Arizona, landlords are required to cover the cost of all utilities and services specified in the lease agreement. Having to pay the water, garbage disposal, or electricity bills for your rental can significantly add up to your monthly expenses.
You can minimize your expenses by only including essential utilities on your lease, such as water and electricity. Additionally, you should consider these costs when pricing your rental. That way, you’ll ensure that services are never cut off and that your profits remain stable.
3. Property Upkeep and Repairs
Maintaining a rental property requires plenty of time and money. This, along with having to deal with unexpected repairs, can significantly diminish your earnings.
By creating a savings fund for maintenance and repairs, you can significantly alleviate the financial burden of these expenses.
4. Vendors and Contractor Fees
Property upkeep is crucial for retaining tenants and ensuring the profitability of your investment. Most property maintenance tasks must be done by professionals. Otherwise, you run the risk of turning a small problem into a serious and expensive repair.
As a landlord, you never know when an emergency may arise. Waiting until an emergency happens to find reliable contractors will only make the issue escalate further and increase the cost of repairs.
That’s why you should take the time to find reliable contractors in your area, including general handypersons, electricians, roofers, landscapers, inspectors, plumbers, and even construction crews.
By creating respectful relationships with vendors and contractors, you can find the best work for the best price, ensuring that your rental property is always profitable and in good shape!
5. High Tenant Turnover Rates
When a tenant moves away, you not only lose your source of income but also have to incur many expenses, such as cleaning, repairs, renovations, and rental marketing. If this happens regularly, your turnover expenses can quickly eat up all of your earnings.
If you have high tenant turnover rates, you should figure out why tenants are leaving so quickly. Is your property in poor condition? Do you fail to address tenants’ concerns and requests? Is the price of rent too high for the area? By finding and addressing the root of the issue, you’ll be able to attract and retain tenants for the long haul.
6. Long Periods of Vacancies
Vacancies are a normal aspect of owning a rental property. You need the property to be empty to make any needed repairs and renovations in-between tenants, however, long periods of vacancy can be detrimental to your investment.
In addition to a loss of income and increased maintenance expenses, vacant properties are vulnerable to risks such as robberies, squatters, and vandalism, all of which can cause additional stress and financial strain. You can prevent vacancies by actively working on tenant retention.
Additionally, you must budget for vacancies. A good rule of thumb is to save up to six months of your regular expenses. This way, you’ll have the funds to cover your mortgage payments, utilities, marketing costs, and maintenance expenses while trying to find new tenants.
7. Unreliable Tenants
One of the biggest mistakes you can make as a landlord is allowing tenants into your home without screening them first. Unfortunately, many landlords forgo the tenant screening process when they’re in a hurry to fill their vacancies.
More often than not, allowing unsuitable renters into your property will result in regular late payments, serious property damage, or even evictions.
Whenever you’re ready to rent out your Tucson home, you must take the time to screen each applicant carefully. Make sure to check their previous rental history, current employment status, and criminal history. This way, you’ll be able to spot and avoid the most problematic renters before it’s too late.
Bottom Line
Rental properties can be a stable source of income, however, it’s important to remember that they’re also an investment. Successfully maintaining a rental unit requires plenty of money beyond the initial investment of purchasing the property.
By identifying the expenses that you’re accruing as a landlord, you can find a way to minimize them and ensure the long-term profitability of your investment. If you need help assessing the financial performance of your rental property, contact Foothills Properties!
