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How Much to Budget for Home Expenses

Patrick H. Page - Thursday, March 7, 2024

Owning a rental property comes with various responsibilities, including budgeting for expenses. To ensure financial stability and peace of mind, it’s crucial to have a realistic understanding of your property costs as a landlord.

Here, we explore different categories of property-related expenses and provide insights on how much you should budget for each to help you better manage your finances as a property owner.

Mortgage Payments

One of the most significant expenses for property owners is their monthly mortgage payment. Generally, the amount you pay for the mortgage should be no more than 28% of your total income, which includes rental payments. Ideally, landlords would make enough rent to cover their mortgage with money left over.

Utility Bills

Utilities include electricity, water, heating, cooling, and internet services. These expenses can vary based on the size of your property, its location, and your renter’s usage. On average, landlords should allocate 10% of their monthly rental income for utilities, unless the renter is responsible for some or all of these bills, in which case the budget can be adjusted accordingly.

Landlord Insurance

Landlord insurance is vital for protecting your investment against unexpected events such as theft, fire, or natural disasters.

The cost of coverage depends on factors like the size and location of your property, as well as the level of coverage you choose. Landlords should consider budgeting around $100-$200 monthly for insurance.

It’s also important for landlords to budget for liability insurance. Landlords should carry at least $1 million in liability insurance, and the policy cost is around $350-450 per year.

Property Taxes

Property taxes can vary significantly depending on your rental’s location, and they may be part of your mortgage bill, meaning you won’t need to budget extra for them. For landlords who don’t have property taxes on their mortgage, budgeting around 1-2% of your property’s value is a reasonable estimate. However, consulting a local tax professional or financial advisor can provide more accurate information.

Maintenance and Repairs

Keeping your rental property in good condition requires ongoing maintenance and occasional repairs. Most landlords budget about 1-4% of their property’s value for these expenses annually. However, the amount can vary based on factors like the age of the property and its specific maintenance needs.

Homeowner’s Association (HOA) or Condo Fees

If you own a home in a community or condominium, you may have additional fees to cover shared amenities and maintenance costs. These fees can be a fixed amount or a percentage of your property value, depending on the specific HOA or condo association. Don’t forget to identify and include these fees in your budget, as they can range from a few hundred dollars to several thousand dollars per year.

Other Rental Property Expenses

Beyond the expenses mentioned above, it’s crucial to consider other property-related costs, such as home improvements, landscaping, and furnishings.

These expenses can vary depending on your rental. Setting aside a separate budget category or allocating 1-2% of your property’s value for these discretionary expenses is recommended.

Your income taxes as a landlord can also be complicated, so working with a Certified Public Accountant (CPA) is a good idea. For this, landlords should budget around $600-900 annually.

Let Circle Property Management Help You Make Your Property Profitable

Creating a realistic budget for rental property expenses is an essential part of being a landlord. By allocating the appropriate funds and reassessing your budget as needed, you can successfully manage your finances and enjoy the income a rental property provides.

Let Circle Property Management help you make your rental more profitable. We keep your property in excellent shape to maximize your return on investment and reduce ongoing expenses. Contact us today at (703) 349-0144 to learn more.

About The Author

Patrick H. Page - Principal Broker | Licensed in Virginia and the District of Columbia