As a landlord, you may be familiar with the many expenses that come with owning…
As a real estate investor, you might wonder: What is included in operating expenses for a rental property? The term “operating expenses” describes the costs of running and maintaining a rental property. Operating expenses are different than mortgage payments or rent. They are deducted from income when calculating total taxable profit for the year.
Rental Property Operating Expenses
Operating expenses for a rental property are usually divided up into four categories. Below is an explanation of these expenses and shows how they might be broken down.
Repairs, cleaning, and grass care are all examples of maintenance. Maintenance is sometimes overlooked due to the unpredictability of the need to replace items or make repairs. The rule of thumb for estimating yearly maintenance expenses is 1% of the property’s value; for example, a property worth $120,000 would have a yearly repair cost of $1,200, or $100 per month.
Insurance, HOA, and Property Tax
Simply contacting the appropriate provider should yield correct results. Your insurance agent, the property manager, or a for-sale listing of HOA fees, and the county assessor can all provide you with information about the cost of your policy.
The average cost of hiring a manager is 6 to 8% of the rent, but research the cost in your location. Pest control and additional gardening are two other expenses to consider. If you pay your own utilities, remember to include them in your budget. However, when a landlord pays for utilities, the cost is generally several times more than if the renter paid.
For more information, check out our article on rental property expenses.