Vacancy expenses. Every real estate investor WILL have a vacancy at one time or another. People move, things happen, it’s just part of the business. And when your tenant moves out, you’ll have to conduct a tenant turnover. Depending on the amount of work that needs to be done, and how long it takes to find the right tenant, it could be a few months. I always account for 5% vacancies in my ROI formula.
Property management expenses. Having a property management team on your side is an absolute must! Hand over these duties to a professional who understands what they’re doing, and be prepared to pay for their expertise! The industry standard is around 10% of your monthly rental income.
Maintenance expenses. If you own your home, you know that things break from time to time. A rental property is no different. It’s wishful thinking to assume you won’t have expenses. I like to set aside at least one month’s rent to cover any expenses. Because we do extensive rehabs, I typically don’t have any huge expenses, but little things do come up occasionally, and you want to be prepared just in case!