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Expenses when owning a rental property

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  • Expenses when owning a rental property

    For this forum, this probably seems like a really basic question, but what are all the rental expenses that should be considered and how much should you budget conditional on the property and the location of course.

    I have things like rates and insurance which I can establish. What about property management - how much do they take, and repairs and maintenance - whats a reasonable figure.

    Are there other expenses I need to consider.

    Background - looking at buying a 60s unit in central Auckland. Structurally looks good. It is a two-bedroom.

  • #2
    If it is a multi unit dwelling of two or more story's be careful - it maybe identified at a later date as an earthquake prone building.
    Property management 8% plus gst, allow for 3 weeks empty as tenants come and go, repairs - if you can do most yourself it's cheaper but if you cant allow 5 to 10% of the rent

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    • #3
      Repairs depends hugely on the property and type of tenants. I guess 10% of rental income per year for a reasonable property, but we have lots of clients who are spending more like 20% a year. Painting can obviously be a big cost.

      Chattels valuation - one off
      Accounting - depends on entity used by around $1,000 for a ball park

      Insurance has jumped hugely. I use to work on $400 per year. Now more like $1,000 for an average house.

      Ross
      Book a free chat here
      Ross Barnett - Property Accountant

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      • #4
        Don't know about apartments as I don't own any, but for the average cross-lease cottage in Auckland I currently budget on $2500 - $3000 for rates, insurance, lawnmowing and fixed water charges.
        (For those that like to moan about high rents, that's $50 - $60 each week straight back out of the Landlord's pocket from the rent he gets).

        Maintenance is much harder to pin down, depending on the age and contruction of the house, the type of property and how much you can do yourself.

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        • #5
          Thanks all. I knew there was stuff I hadnt covered.

          Flyernzl - how much is the lawnmowing in isolation. There is a lawn and a garden which looks like its a bit out of control.

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          • #6
            Obviously depend on the size of the lawn,
            I pay around $20 - $30 per fortnight for lawns only.

            A good idea is to keep an eye on the neighbouring properties and find a lawn contractor who is already servicing the lawn next door (or over the road). You then get a good price because he can go straight from one customer to the other, no travel time.

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            • #7
              Future rent proofing is something i had'nt anticipated having to do. Where theres a surplus of rental property its a renters market and if your property has slightly fewer appealing features compared to the next property then you may find it just a bit longer before you find a tenant. By future rent proofing i recently built a small deck area onto a 2 bedroom unit in order to make it more appealing as i was finding i had many prospective renters looking at the property but no takers. In the end i reduced the rent to get someone and now have built a wooden deck area to future rent proof. 10 years back when i first built the unit there were no shortage of people wanting to rent it at first glance but now with a saturated market you have to make it that every bit more appealing.

              General maintenance costs can be extremely variable . The larger houses command more expenditure regarding maintenance yet are generally not as good as generating revenue per dollar invested.

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              • #8
                <but now with a saturated market you have to make it that every bit more appealing.>

                where is the saturated market you talk of?

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                • #9
                  i would say most of Auckland ..Its become a popular activity i.e "I'll buy a rental property and make a million dollars "..
                  Last edited by mrsaneperson; 02-01-2014, 06:41 PM.

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                  • #10
                    Originally posted by mrsaneperson View Post
                    i would say most of Auckland ..Its become a popular activity i.e "I'll buy a rental property and make a million dollars "..
                    So if the market is saturated I presume you mean their are more rental properties than people to rent them? If that is the case then we should see rents dropping soon.

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                    • #11
                      Originally posted by mrsaneperson View Post
                      ..Its become a popular activity i.e "I'll buy a rental property and make a million dollars "..
                      Well it's true.


                      Gary Lin's Additional Information

                      Websites:
                      Interests: Gary started property investing in 2010 when he joined Ronovationz and became one of Ron Hoy Fong's coaching students. During the last 3 years, Gary had purchased 9 rental properties over 3 years with a combined current market value of 3 million dollars, and has made over 1.3 million in equity and 25k net annual income from his rentals.

                      Groups and Associations: Ronovationz

                      Honors and Awards: Super [email protected] for holding 8+ properties

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                      • #12
                        Originally posted by mrsaneperson View Post
                        Future rent proofing is something i had'nt anticipated having to do. Where theres a surplus of rental property its a renters market and if your property has slightly fewer appealing features compared to the next property then you may find it just a bit longer before you find a tenant. By future rent proofing i recently built a small deck area onto a 2 bedroom unit in order to make it more appealing as i was finding i had many prospective renters looking at the property but no takers. In the end i reduced the rent to get someone and now have built a wooden deck area to future rent proof. 10 years back when i first built the unit there were no shortage of people wanting to rent it at first glance but now with a saturated market you have to make it that every bit more appealing.

                        General maintenance costs can be extremely variable . The larger houses command more expenditure regarding maintenance yet are generally not as good as generating revenue per dollar invested.
                        Yes I've had a similar experience with my units. I actually had to reduce rent on one of my lower quality ones (due to a very steep driveway and insufficient parking) by approximately 10% over the last four years to keep it tenanted. A few years ago any prospective tenants were generally ok with the driveway and parking situation but over time it seemed like tenants became pickier and pickier as the number and quality of competing properties began to improve.

                        I am concerned about the future of the smaller 2 and 3 bedroom units once the large pipeline of townhouses and apartments start to come onstream. From a price and equity perspective, these new townhouses and apartments are priced well above existing stock however from a rental perspective these new properties are nicer, larger, and in direct competition with existing units.

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                        • #13
                          Originally posted by gavinc View Post
                          So if the market is saturated I presume you mean their are more rental properties than people to rent them? If that is the case then we should see rents dropping soon.
                          To a degree yes. As AMR says above people are becoming pickier. They become more picky because there are more similar properties around .My own 2 bedroom rentals have only risen around $40 over a 5 year period ,equating to around 2% rise every year. In some cases i had to reduce the rent in order to get tenants quicker.

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                          • #14
                            Originally posted by speights boy View Post
                            Well it's true.


                            Gary Lin's Additional Information

                            Websites:
                            Interests: Gary started property investing in 2010 when he joined Ronovationz and became one of Ron Hoy Fong's coaching students. During the last 3 years, Gary had purchased 9 rental properties over 3 years with a combined current market value of 3 million dollars, and has made over 1.3 million in equity and 25k net annual income from his rentals.

                            Groups and Associations: Ronovationz

                            Honors and Awards: Super [email protected] for holding 8+ properties
                            For a small few yes its true.Others grit there teeth as they find out the hard way owning a rental and running it properly at a profit can be another story.

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                            • #15
                              Originally posted by speights boy View Post
                              During the last 3 years, Gary had purchased 9 rental properties over 3 years with a combined current market value of 3 million dollars, and has made over 1.3 million in equity and 25k net annual income from his rentals.
                              Let's see where he is in 2013 then.
                              www.3888444.co.nz
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