Thursday, May 02, 2013

Good To Know: Detailed Expenses

I would say half the time, if not more, when I ask for the income and expenses for a listed rental property I am given two numbers. One for income and one for expenses. You probably have as well, or you will.

If you are a seasoned real estate investor, you know to get more detail. If you are new to investing in real estate, be sure you request more details.

First you'll want to know what the property taxes as been in the past year or two. You will also need the have the cost for property insurance. Utilities, make sure all is included; water and sewer, electricity, heat, water heater rental if applicable and so on. Snow and garbage removal.

These next two, are the ones missing most of the time. Vacancy. I allocate a minimum of 5% of the total rental income. Even if the property is advertised as low or no vacancy. It also wouldn't hurt to contact local property managers and inquirer about the rate of vacancy in the area of the property. Maintenance. Unless it is a brand new building still under builders warranty, there is going to be maintenance fees. Even if it was brand new, there will still be clean up between tenants. I also allocate 5% of total rental income. If the previous owner is recording a higher amount to maintenance, make sure to run your calculation with the higher amount but you may want to questions why that amount is so high. Was it for renovations? If so what was done in the renovation? Was the work done with city permits? Was it to replace the water heater? What was wrong with the old one? Did it burst was there water damage?

Most of these questions I would ask once the property is secured with an accepted offer. Once it is under contract, it is the time to verify those expenses. Ask for copies of bills and statements.