5 Biggest Expenses You Face Renting Out Your Second Home
BOSTON (TheStreet) -- If you have a vacation property or second home that sits unused for portions of the year, it may make sense to rent it out. Whether you offer a long-term lease or short-term stays via sites such as airbnb, there are expenses associated with opening your property to a renter -- and experts caution that many first-time landlords don't understand how quickly the overhead and incidentals can add up.
Here's a look at the five biggest expenses associated with renting out your property.
Renter turnover is one of the biggest deciding factors that can turn your property into a source of cash flow or a money pit, says Michael Corbett, Trulia's real estate expert and author of Before You Buy."This really is the biggest consideration," he says. "People think if one renter doesn't work out they can just move in a new one -- and that's true -- but the cost in doing so can be substantial." 7 Worst Things to Hear in a Home Inspection For example, if you rent your apartment out for $1,500 per month, when someone moves out and leaves it vacant, you'll lose $1,500 on that month's rent, Corbett says. This is to say nothing of the cost to clean and spruce up the apartment properly for the next renter. "When a renter moves out and a new one moves in, the carpet will need to be cleaned, the walls will need to be spackled and painted, and that's if they've been there for a month, a year or five years," says Vik Raghavan, co-founder of apartment finder RentalRoost. There's a reason hotels have such a huge maintenance staff, Raghavan says. "Moving in and out is an inherently damaging process. There's wear and tear with every move -- more if your renter has kids or pets," he says. Even if you have a neat renter who lives alone and never hung anything on the walls, the property will still require a major scrub down when they move out, Corbett says. A professional cleaning service typically charges around $300 for a small apartment or condo. "It has to be sparkling clean when a new tenant gets the keys. They aren't going to move in to anything less than spotless," he says. Renter "landlord" insurance: Although renter insurance (also called "landlord" insurance) is optional, it's a good investment, Corbett says. It typically costs more than a regular homeowner's policy, but offers a lot of great coverage that protects you and the property. "It's becoming a lot more popular lately," he says. "It covers you if the property burns down because the tenant starts a fire or causes other damage. If you're renting a property with just regular homeowners insurance on it, the insurance company can deny your claim. A rental property insurance policy is completely different, and you need it to protect yourself." Note that a landlord policy for a long-term renter is different from a policy for short-term vacation rentals. Make certain you get the right policy for your property, Corbett cautions. Handyman and maintenance Not all handymen are created equal, Raghavan says. The smartest move you can make is to find one you like and establish a relationship. "If your tenant has a leak that needs to be fixed immediately, it's not uncommon to get completely fleeced," he says. "If you don't know someone reliable you can call, you don't know what type of service you're going to get or how much you're going to pay." It's always a good idea to use a verified maintenance service with vetted employees, he says. Although these services won't be the absolute cheapest, they do offer reliable work at a reasonable cost. "You never know when the boiler, dish washer, or washer and dryer are going to go out. You have to have a plan in place for how you're going to fix and replace these things," he says. "You need to have the money set aside. It's not uncommon for a landlord to pay out of pocket $1,500 to $2,000 for a new boiler." The nuts and bolts: If you already own a second property you probably understand this to a certain extent: The costs associated with your rental home will be similar to those you face with your full-time residence, Corbett says. "Your rental home will have the same unexpected large expenses that pop up with any property you own," he says. "This includes problems associated with the roof, appliances or septic tank." 6 Things to Ask Before Diving Into Pool Ownership It also includes any serious problem or health hazard that may be found on the property, Raghavan says. For example, mold, water leaks or termites must be taken care of immediately just as they would in your own home. "If a tenant causes water damage, you have to take care of it immediately," he says. "The longer it stays there, the bigger and more expensive it will get. The mold that can be caused is also a huge legal liability. Landlord laws require that you have no mold." When it comes to appliances in your rental unit, beware that your tenant will expect an immediate replacement on anything that breaks. "In your own home, if your fridge breaks and it takes a couple of days to fix, you'll live with it. But when something breaks with a tenant, they want it fixed immediately," he says. "It always costs more to have things repaired or replaced on the fast track than if you have a little leeway." Furniture and general wear and tear: If you're renting out a vacation home or a property that will see a lot of weekend or weeklong renters, furniture will be one of your biggest expenses, Corbett says. "Your wear and tear is going to be much greater on a home when you have short-term rentals. You'll still have the expenses associated with cleaning and refreshing, and you'll also have the expenses of maintaining the furnishings." Unfortunately, renters just don't take care of furniture in a rental property like they do when they own it and have to maintain it for years to come, he says. "No matter how many times you tell them to put towels down on the sofa so you don't have to replace cushions that are soaked in suntan lotion, they don't listen. You'll walk in to a sofa that has red wine spilled all over it and carpet with big blotches of Diet Coke." In general, short-term renters treat the property more like a hotel. "There's the attitude of, 'Oh, the cleaning crew will take care of that. I'm just here for a short time,'" Corbett says.
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