I’m a beginning investor. I’ve never owned my own home and I’ve alway had electric heat, so I’m not familiar with the costs associated with owning a house. How much should I estimate for the following expenses?
I live in Baltimore City in case it matters.
Gas/Heating Fuel:
Insurance:
Water & Sewer:
Trash Removal:
Exterminating:
Repairs:
Decorating/Cleaning:
Carpet/Flooring:
Thanks.
Howdy Nonyabd:
This is a really vague question. There are too many variables in each catagory that depend on your taste, value of the home, how warm you like the house, etc. A lot of the costs will be fixed like trash collection will be about 15 per month.
I would suggest you call and get quotes on insurance, taxes, etc and then ask your neighbors what they are spending for heat, trash, bugs etc.
You will not need to replace the carpet, roof, and repair every month. A lot of commercial loans have a reserve for replace escrow account set up where the borrower will pay a small amount into an escrow account and maybe even start with a big amount where the account can be drawn against for major repairs. You may want to do the same thing and start with $1000 or as much as possible and add $50 to $100 per month.
You can figure out what the carpet will cost and the roof and heater unit etc and determine their useful life to find an exact number that it will cost over the useful life of the item.
OK, let’s try this again… Maybe I should give a better explanation of what I’m looking for and why I’m looking for it.
I intend to wholesale houses with FMV of around 100k that would make good rental properties for other investors.
They will have 2-3 bedrooms.
As I said before, I’m in Baltimore City
I’m looking for average costs per year. What are your average repair costs on a rental property like this assuming all materials (carpet, ect.) are the same quality you would use in rental properties you own. What are your fuel costs on 2-3 bedroom rental properties in this general area of the country? What are your trash pickup costs?
I don’t need exact numbers. I doubt that trash pickup would be $2 in one town and $200 in another. I doubt fuel costs would be $2 in one town in this general area of the country and $200 in another town in this general area of the contry. I’m looking for estimates that I can plug into my calculations to determine the yearly operating costs for an investor who is likely to buy the property from me. I’ll add those costs to the debt service costs to determine if it’s a good investment.
I hope this clears things up. Thanks.
Actually the costs CAN vary greatly by part of country and time of year, also simply by what type of heating system the house has. Investors buying in these areas will already know about what these costs will be, and what rents are. For single family rental homes in your area, are utilities normally included in the rent or does the tenant pay? Is garbage separate or is it included in taxes? Average repair costs depend on the condition of the house when rented, and, frankly, the standards the landlord has. A good rehab before a tenant moves in should result in few necessary repairs. As for utilities, you might just ask the previous owner for copies of the past 12 months bills (although it is probably rare that the seller has these available!)
You missed three big areas that could amount to larger expenses than the other items combined–mortgage, taxes and insurance. In my part of the country the way taxes are structured, you can’t go by what the previous owner was paying, depending on how long the house was owned, they might double, triple or even quadruple.
Again, if you are wholesaling to other investors who hold rentals, they will have their own calculations. They’ll know by looking at the FMV and repairs required what price makes sense. Before presenting them with “deals” talk with them to see what they are looking for. At what price do they need to buy a house with a FMV of 100k to make sense for them? Most of the time it will depend on repairs needed to make it livable, taxes and insurance, and of course what the house would rent for.
Kim