Hidden Costs in Real Estate?

[Gino Barbaro]

Hey everyone

I just wrote an article on BP about owning real estate and hidden costs >>> https://www.biggerpockets.com/renewsblog/hidden-co...

I know there are countless other hidden costs out there?  Can you think of any other hidden costs and mention them here?  I would like to write a follow up article for any new investors

Thanks

Gino

[Frank Jiang]

Reserves.

Let's say I have a $100,000 house that generates $10,000 a year.  It makes 10% return right?

What If I need to hold $10,000 in reserve account in case of emergencies that can't be invested elsewhere?  This $10,000 has to be held as working capital and can't be removed before end of project, meaning time value of money is working against it.

-	IRR	IRR
-	10.0%	9.1%
Year	No Reserve	With Reserve
0	$ (100,000.00)	$ (110,000.00)
1	$ 10,000.00	$ 10,000.00
2	$ 10,000.00	$ 10,000.00
3	$ 10,000.00	$ 10,000.00
4	$ 10,000.00	$ 10,000.00
5	$ 10,000.00	$ 10,000.00
6	$ 10,000.00	$ 10,000.00
7	$ 10,000.00	$ 10,000.00
8	$ 10,000.00	$ 10,000.00
9	$ 10,000.00	$ 10,000.00
10	$ 110,000.00	$ 120,000.00

Including calculation for reserve reduces IRR by an entire percentage point.