Landlord Budgeting: 18 Essential Expenses Every Property Owner Should Account For

Owning rental real estate can be a great way to grow your wealth. Notice I said “can be.” It can also be a great way to LOSE money—if you don’t do it right. 

One of the best ways to lose money is to not properly account for all of your expenses. And while every home is different, and therefore every comprehensive list will be different, there are a lot of things that are the same for every property. 

Here is a very long list of things you should be budgeting for—and including in your calculations when you’re running the numbers on a potential new property!

Capital Expenditures

Capital Expenditures are frequently called CapEx for short. Think of them as expensive, infrequent repairs or replacements. Things like a roof, a furnace, appliances, a water heater. You aren’t going to be buying a new roof every year—the lifespan of a roof typically starts at 25 years and just goes up depending on the material used. 

But eventually you’ll have to replace your roof, so you’ll want to have funds available when you do. Right now, a roof starts at $15,000. The way to figure out how much you’ll need to budget for your eventual roof replacement is to divide the amount of time left on your roof by the cost of the replacement. 

I’ll use my own home’s age for the examples. My roof is 3 years old, and I’ll probably be looking at an $18,000 repair cost. So 25 years average roof minus 3 years old is 22 years or 264 months. $18,000 divided by 264 months is $68.18 per month that I should be saving toward my eventual roof replacement.

But CapEx isn’t just a roof replacement. A water heater starts at about $600 and the lifespan is 8-15 years on average. (When you replace yours, put a drain pan underneath it. This WILL be the best $20 you ever spend.) HVAC systems start around $5,000 and only go up.

CapEx is super important to keep in mind as you’re evaluating a deal. If rent is only a couple hundred dollars more than your mortgage payment, you’re losing money as soon as you buy the property. 

Vacancy

Eventually, this market will shift, your tenants will move out (hopefully at the end of their lease while leaving their unit super clean!) and you won’t be able to find the next tenant, creating vacancy. While I see many people calculating 5% for vacancy, one month’s rent is actually 8.3% vacancy. I’m always very conservative in my numbers, and if you plan for 8 but only need 5 or less, you win. 

Routine Maintenance

You own the home, so you’ll need to keep it in good repair. Routine maintenance helps keep your home in tip-top condition, and alerts you to the start of problems so you’re making a small repair instead of fixing a huge problem.

Much of this is DIY-able, but it’s best practice to consider the cost of hiring it out when running the numbers on a potential rental in case your portfolio becomes too much to do yourself or you simply choose to be hands-off.

Some things to think about when creating your budget are:

Repairs

During the course of owning the home, things will break. That’s just the way life goes. You have a CapEx fund for the infrequent replacement of big-ticket items but don’t forget those smaller things. 

A good rule of thumb is to hold back between .5% and 1% of the purchase price of the home per year for repairs. On a $300,000 house that’s $1,500 – $3,000. Some years you’ll have funds left over and some years your repairs will go over, but you’re a YNAB user to be prepared, right?

Cost of Doing Business 

Owning a rental property is owning a small business and there are costs involved in owning and running a business. 

You need a GREAT lease. Downloading a free lease off the internet does not adequately protect your interests in the property. Check out this resource to purchase a state-specific lease, written with attorneys in conjunction with each individual state’s landlord tenant laws. 

A good, real estate focused CPA will frequently save you more money on your taxes than they charge you. A great Property Management company will take the day to day off your plate—for a fee of course. Typically 10% of the monthly rents and finding a new tenant costs one month rent. If you’re barely making a profit, this could be a deal killer.

Your Time

The number one cost new landlords forget to factor in is their time. It takes time to set up your rental. If you are going to hire everything out, it still takes time to find the right person to run your property for you. And you SHOULD take the time to find a great Property Manager. Here is a list of 76 questions to ask your Property Manager BEFORE you hire them.

If you’re going to run the property yourself, it’s going to take a lot more time. Make sure you’re adequately compensated for your time! Advertising your property for rent, tenant screening, showing the property, maintenance calls, rent collection & deposit, and paying bills for the property all take time. Here’s more of an overview about what exactly is involved in renting your house.

For new landlords, it can be easy to overlook these very real costs associated with owning rental property—it’s more than simply the delta between the rent and your mortgage payment. Not properly accounting for these expenses can end up costing you big money and turn what looked like a great deal into an endless money pit that eats up all your profits. 

You can make great money and generate long term wealth by investing in real estate, but you need to run your numbers correctly and account for everything. Just as in your daily life, your rental property also needs a budget.

Mindy Jensen is a licensed real estate agent in Colorado, author of How to Sell Your Home, and the Community Manager for BiggerPockets, where she helps new and experienced investors learn the proper ways to invest in real estate to grow their wealth. She’s also the co-host of the BiggerPockets Money Podcast.