When buying a rental property, owners can expect two types of expenses – capital and maintenance. Both costs are tax deductible but in different ways. Capital expenses improve the property after purchase, such as replacing a roof, adding a patio, or major plumbing or electrical upgrades. Or, owners remodel a room for better use, such as converting a basement into a bedroom and bath. Investors depreciate the cost of these improvements over time. On the other hand, maintenance expenses keep the property in working order and meet or exceed all requirements dictated by Colorado’s habitability laws. Maintenance expenses include:
- Fixing a leaking faucet or toilet.
- Repairing an appliance.
- Servicing the heating and cooling systems.
Maintenance expenses are deducted from rental income. Savvy investors realized that well-maintained homes generate higher rents and attract good tenants. Deferring maintenance can lead to costly repairs, unhappy tenants, and loss of rental income. Below are typical expenses investors should expect on when buying a rental property.
Home Appliances
Appliances perform specific tasks like heating, cooling, cooking, and washing. These machines come with the property and need servicing to keep them working to the manufacturer’s specifications. Periodic service extends each appliance’s lifespan. Heating systems need to be checked in the fall before it gets cold, while air conditioning systems need tune-ups in the spring.
Deep Cleaning
When an investor buys a property, the kitchen and baths need sanitizing, carpets deep cleaned, and the floors mopped to prepare the property for the rental market. Deep cleaning is required after each tenant vacancy to prepare the property for the next renters.
Flooring
After taking possession of the property, the owners must repair all wood, tile, and linoleum surfaced to keep them functional and attractive. Ordinary wear and tear is the property owner’s responsibility, so it is best to treat all floors between renters.
Landscape
An attractive landscape increases the curb appeal of a rental property. A weed-infested yard with out-of-control shrubs surrounding a home is not appealing. New owners must care for the yard and trim the bushes and trees. If the yards have flower beds, plant perennials to add color to the yard.
Paint
Fresh paint is a great way to improve the look and feel of a property. Use neutral colors because the latest designer color eventually goes out of style. Painting the interior of a home covers normal wear and tear, like scuff marks and scrapes on the walls and ceiling. Painting the outside will increase the rental’s curb appeal.
Pest Control
In Colorado, insect and rodent infestations are uncommon if investors clean the homes between renters. Tenants might request spot treatment of ants, roaches, fleas, and rodents as needed.
A thorough inspection by professionals should give rental property buyers an idea of what capital and maintenance expenses to anticipate after they buy rentals. After that, they should proactively repair and fix the rental annually to maintain their asset. DenCO Property Management (DenCO) believes in bi-annual property inspections to keep ahead of repairs and avoid more significant problems.
Other Expenses Owners Should Expect When Buying a Rental Property
Landlord Insurance
Landlord insurance is for people renting out their homes and typically includes liability and property protection. Factors affecting premium cost include the type of coverage, deductible amount, and the number of claims filed.
Property Taxes
Savvy residential real estate investors incorporate property taxes in their profitability analysis before they buy a rental. Rental income should cover current taxes. If it does not, they should not buy the property. Rental increases must keep up with future property tax increases over time. Some investors find themselves in financial stress by not including taxes and fees when buying a property.
Replacement
https://denverpropertymanagement.co/home-investor-guide-to-hiring-a-property-management-company/Roofs, heating, and cooling systems wear out over time. Water heaters fail in Denver in about ten years because of our cold water. Investors should put money aside each month to cover future capital expenditures.
The Property Management Decision
Some owners self-manage their rental properties, while others engage the services of a professional property manager. Property management companies manage maintenance expenses and supervise large capital projects like roof, heating, and cooling system replacements. Property managers also pay the bills and manage all tenant relations. Whether to hire a property management company depends on the investor and the amount of free time they want for other pursuits. Click here for more information on the ins and outs of hiring a property management company.
DenCO is here for owners when they decide to put their investments under expert management. DenCO manages over 150 homes, duplexes, and apartment rentals in the DU, Washington Park, and other Denver neighborhoods and has been in business since 1990. Call us at 303-722-9688 or click here to complete a Contact Us form.
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