In real estate business, finance plays important role. You will always need to calculate and estimate everything so every money you spend will be worth it. Thus, you need to be aware that property investment expense doesn’t end once you purchase a property. There will be ongoing financial setting you need to handle and sometimes there are unexpected expenses you should take care of. The most important thing you should do to avoid costly expenses is to purchase investment grade property. At least, it can deliver more than capital growth. Thus, you can make up for the expenses along the way. Still, there might be some hidden expenses while you are managing your cash flow.
Unexpected expenses you should be prepared with
Sometimes, unexpected expenses arise when you least expect it. It can be overwhelming and stressing. You may encounter more than one hidden expense along your investment journey. Instead of fearing them, better to know possible hidden expenses so you will be more prepared.
- The most obvious yet hidden expense is maintenance and repairs. Even though you purchase investment grade property doesn’t mean you will be free from maintenance and repairs. Along your investment journey, your property will age and some maintenance as well as repairs will eventually be needed. Instead of waiting until something broken severely, it is better to keep everything in good condition through regular maintenance and fixing. For example, you can change window covering regularly. Routine inspection will help preventing you from spending too much money due to severe damage of your property.
- Another unexpected and unwanted expense you may suffer in the future is vacancy. It is never a good thing for property owner to have their property vacant for too long. However, sometimes vacancy is inevitable. It happens when old tenants shift out and new tenants shift in. there is vacancy between the shifts which affect your cash flow. However, you still need to pay for the mortgage regardless you receive income or not. Thus, make sure to have financial buffer so you can survive from vacancy period.
- Next hidden or unexpected expenses comes from property management fees. Hiring property manager is good strategy. However, it also means that there are fees to pay for property management such as a weekly percentage commission, lease renewal, and letting fees. If you have short-term lease, it will disadvantage you because you need to pay for those expenses in every six months. Thus, it is recommended to have a 12-months lease on your investment property.
- Last but not least possible hidden expense is insurance. Building insurance premiums will be paid by your owner corporation fees if you own an attached dwelling. However, you will need to pay it yourself if your investment property is a house. There is also landlord insurance that you might need to pay. It is one of important insurance you should have to cover malicious damages by tenants. However, make sure to get the best deal for landlord insurance so you can still save your money.