Rental Property Expenses for Analysis

[Benjamin Barredo]

hello everyone.

I'm currently doing my homework and analyzing 1 deal a day for potential rental properties. I think I found a great foreclosure in South Knoxville but I want to make my analysis as accurate as possible.

What expenses do I need to include and what is a good average amount for each.

My analysis is for a 2/1, 1339sqft house. It's being appraised on Zillow at $79k but it's at the bank and I think there's a good possibility of getting it for $50k-$55k.

Electricity would be paid by the tenants, but since it's in Knoxville, doesn't that mean they'd pay the water or would I? How much should I figure that to be? I was guessing $50/month.

What about homeowner's insurance?

PMI? Garbage? Other?

I'd manage the property myself.

What about future assumptions for repairs and maintenance?

Thanks a lot.

[Link McGinnis]

Hey Benjamin,

This is a single family home.  You can set this up any way you like and your tenant will just have to accept your terms.  If you want to do their lawn maintenance, for example, that's your decision.

But, I would suggest that you're going to have to pay for your costs of owning (property tax, insurance and loan (including PMI if that's part of your mortgage deal)). Insurance is some sort of "Landlord" policy - check with your agent.

You'll also be on the hook for maintenance.  Even maintenance should be part of the renters agreement.  For example, you don't want to be responsible for replacing light bulbs that go out.  But, you will (probably) want to have them call you about any water leaks.  Put these in writing.

The tenant pays for water.  In a multifamily unit, this may/may not be the case.  But, for single family they do.  They have to have it put in their name at the utility just like they will have to do with the electricity.  You don't want to have these in your name.  Imagine that they strike a deal with the next-door neighbor for an exchange - "you can use my pool if you fill my pool from your hose, with your landlord's money!"   Or, the toilet flap doesn't seal well.  "But, who cares!  My landlord foots the bill!" Make them foot the bill and showers will be shorter and they'll wash their car elsewhere!

Ask the utilities to make the account revert to your name when they disconnect.  That way, when the tenant leaves you don't have to do anything to get it back in your name.  The tenant will call to "disconnect" and the utility just defaults back to you.  This also keeps you from having to go back to the utility to pay additional deposits or provide references - every time you lose a tenant!

For any costs that you will incur, like landlord insurance, just call a local insurance company and give them the address and a bit of information so they can provide you with a quote.  It won't take them long and then you're not just guessing.

Put some rent money back each month for a while so you can handle repairs that come up.  You're going to have exterminators, plumbers, HVAC, electricians visit your home from time to time and they expect to eat!  And you may have to replace/repair more when you turn over from tenant to tenant depending on how badly they treated your property and what kind of condition you want to provide for the next occupant.

Good luck with it all.  More questions?