If you’re renting out a Philadelphia investment property, you’ve probably done some early budgeting and you know you’ll have a number of fixed and variable costs throughout the leasing period and the tenancy. You understand you’ll have to pay your mortgage, your taxes, and your property insurance. You’ll need to make repairs from time to time and you’ll have turnover costs between tenants.
These are important budgetary items.
However, a lot of investors are surprised to learn that their largest costs are often unexpected.
Those unexpected costs can be a bit of a shock, and it’s frustrating (and financially stressful) if you didn’t see those expenses coming.
We want to limit the surprises by sharing some of the most common unexpected costs that Philadelphia real estate investors often run into. We’re also sharing some tips on how to budget for those.
Longer Vacancies and Philadelphia Rental Homes
Before investing, you likely worked the cost of potential vacancy times into your financial planning.
You need to do more than plan for the slowdown in your rental income during these periods, however. A lot of new owners are surprised at how expensive it is to keep an unoccupied property maintained, safe, and ready for new potential tenants to see it. There’s more to this cost than the missing rent.
You’ll need to pay out-of-pocket for ongoing bills during vacancy periods such as:
- Pest control
These expenses will fall to you without the benefit of any rental income to offset them when the property is vacant. You’ll have to pay to keep the water and the electricity on, and there are likely to be repairs needed after one tenant moves out. You’ll have marketing expenses, too.
When you’re budgeting for vacancy, don’t forget the costs that come with preparing your property for the rental market. Keep vacancies as brief as possible, and work hard to retain your tenants so you can avoid these potential surprises.
Emergency repairs will always cost more than you expect them to. It’s hard to plan and budget for that break in the sewer line or that leaking water heater. But, when they occur, your tenant will call to report the problem and you’ll have to respond immediately.
Even if you have a great team of vendors and contractors ready to respond, there will be some expenses you may not have anticipated. Mitigating the damage early is a great way to save money. Respond right away to these calls for help, otherwise you’ll find yourself spending way more than you want to.
If the repair is so extensive that the tenants cannot stay in place, you’ll have to move them into a hotel or another property. That’s going to cost some money upfront, even if you have insurance to cover an eventual claim.
Whether it’s a problem with heat in the winter, water, or electricity, the budgeting you did for ongoing maintenance will not cover those emergencies that are not always preventable. Make sure you have a reserve to call upon when things like this occur. Pay attention to preventative maintenance, too. If you’re having your systems inspected and serviced annually, you can reduce the likelihood of an emergency.
Another expense that’s often left out of maintenance budgets is the cost of replacing appliances, roofs, water heaters, air conditioning units, and other systems. If you know your air conditioning unit is going to last 15 to 20 years, anything past the 15 year market could mean that you have to replace the entire system.
Start planning for replacement costs when things approach the 10-year mark, otherwise you’ll find yourself surprised that it’s already time to install a new refrigerator or washing machine.
Evicting a Philadelphia Tenant
Evictions can be a huge surprise, especially if you think you have a great tenant in place. Bad things happen to even good tenants, and you never know when they’ll suddenly be unable to pay rent.
Many owners are surprised to find out what it costs to evict or otherwise remove a tenant who isn’t paying rent or not following the lease. You’re missing a lot of rental income when you have to evict, and there will be additional court fees even if you are successful in evicting a tenant.
It doesn’t even have to be an eviction to create a sudden and expensive cost for you as a rental property owner. 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.
Avoid potential eviction costs with a careful screening process, a strong lease, and a solid tenant relationship that inspires communication and cooperation.
Planning for Philadelphia Rental Property Costs
In our experience, two things can be done to avoid these surprise expenses:
- Partner with a Philadelphia property management company
- Invest in preventative maintenance.
It helps to have experience and excellent maintenance relationships in place. A good property manager will track your systems and their performance. We can alert you to things that might be an issue before they complete breakdown. We also have good relationships with vendors and contractors.
You’ll have repair bills, longer vacancies, and eventual replacements throughout each tenancy. You’ll also run into bad tenants from time to time. When you’re as prepared as you can possibly be, those unexpected costs won’t set you back too far.
If you need help budgeting or avoiding unexpected costs when you’re renting out a home, contact us at TCS Management. We’d love to help you plan for everything when you invest in a Philadelphia property.
TCS Management is a full service property management company headquartered in Philadelphia, Pennsylvania, also serving Harrisburg, PA, Cherry Hill, NJ, Wilmington, Delaware and the surrounding areas. We focus on single-family and multifamily residential property management of homes, condos, townhomes, and apartment buildings.