As a professional real estate management firm in Grand Rapids MI, we see many things that owners forget to budget for. Below is a list of items to make sure you budget for when purchasing a rental property.
If you decide to rent out your own home, it is no longer 100% homestead. This means at 0% homestead, your taxes will go up. In Grand Rapids MI, we see taxes go up 40-50% when the property goes 0% homestead.
Many owners think that their tenants will be the best. The tenant will NEVER have to be evicted. The tenant may lose their job, car breaks down, someone dies, etc… There are things that happen that are outside of the tenant’s control. Be ready for an eviction and hopefully it will never happen!
We see many owners that call our real estate management company in Grand Rapids that forget all about capital expenditures (below):
The bathroom that is brand new will need an update in 5-10 years. If you remodel the bathroom yourself, the budget will be less than hiring a certified builder. To get high rents, you need to keep your bathroom spruced up. TIP: Make sure the paint you buy is the correct bathroom paint. SUGGESTION: Wire the lights and the bathroom fan to the same light switch. This way the tenant will always need to have the fan on when they are showering. Buy a high powered bathroom vent fan.
Kitchens need an update every so often. Paint can do wonders for a kitchen, but at some point you will need new cabinets and countertops. If you decide to remodel the kitchen, you will probably need new flooring and light fixtures. SUGGESTION: Remove the garbage disposal and faucet sprayer, it causes maintenance issues.
At some point the flooring when need replacing. Many owners are considering the vinyl plank for flooring because it typically lasts much longer.
PLUMBING AND HVAC
At some point, the furnace and/or water heater will go out. Make sure you have enough money to replace it. When you replace the water heater, the old corroded plumbing lines may plug up so you may have to repipe the plumbing lines on the whole unit. This rarely happens and isn’t as big of a deal as it sounds, but it can happen.
Some cities will make you bring mechanicals up to code when you replace the water heater or furnace. For example, let’s say the water heaters are vented into a chimney and it doesn’t have a chimney liner down it. You will have to put a new liner down the chimney. Since the chimney liner is rated for a certain amount of BTUs, if the chimney isn’t large enough you may have to replace more of the mechanicals. Our real estate management company has had instances where two water heaters and two furnaces needed replacing to be up to code on a duplex. That project gets expensive quick!
If the property is a multi family with separate mechanicals, they are probably the same age. That means when one water heater gets replaced, the other ones are not far behind.
Your old wooden windows that are drafty whether they are open or closed should be replaced. In Grand Rapids, they mandate that the windows aren’t drafty. Newer windows also adds value to the property.
The appliances at some point are going to be past the point of no return. If you are spending $150/MO on appliance repair, it’s time to buy a new one. SUGGESTION: Used appliances can break as often and the old ones you are replacing. Budget a little more to buy new appliances. The tenant appreciates it too.
If the property is wood sided, you will either have to paint or re-side the property. A property that is wood sided means painting it every 3-6 years. If the property is brick, then you may have to re-tuckpoint the brick at some point.
The roof is not going to last 50 years. Don’t forget to budget for it’s replacement and roof patches when a leak occurs.
REAL ESTATE MANAGEMENT AKA PROPERTY MANAGEMENT
You may not need property management for your only single family home or duplex, but what is your goal? If your goal is to work full time, have 10-20 rental units and then vacation when you retire, be sure to budget for property management when you purchase the property!
We will be doing a blog post on budgeting for capital expenditures soon, so watch our blog!