We’ve all watched the HGTV shows. We’ve seen the flippers and real estate investors making seemingly large sums of money through investing in real estate believing it’s our plan to achieve financial freedom but before if truly want to achieve success in real estate investing, it begins with understand what costs and expenses are unavoidable. The sooner you understand the costs and income associated with real estate investing, the sooner you can set realistic goals and ultimately achieve your dreams as a real estate investor.
Once you own an investment property, outside of the purchase price and closing costs of course, you’re going to be responsible for the following expenses:
- Utilities including, Water, Electricity, Heating; once the property is tenanted, the Tenant will typically assume these expenses, but if the property is vacant you’ll be liable
- Property taxes
- Condo fees (if applicable)
- Property Insurance will all be your responsibility whether the property is tenanted or not,
- Repairs and maintenance will be your responsibility as well if and when they come and believe me they will come up
- Snow removal and lawn/landscaping maintenance if the property is a freehold property (meaning not a condo property)
Your income sources would be the following:
- Cash flow from rental income, this will be the gross rent – all your expenses (mortgage, property tax, insurance, income tax) – although it’s not ideal to have a negative cash flowing property and would be ideal to have a positive cash flowing property, having a negative cash flow doesn’t necessarily mean it won’t ultimately be in your benefit, it’s all circumstantial.
- Building up equity, paying down mortgage: Your other income source outside of rental income will come once you built up equity through appreciation and paying down some of the mortgage however you will not benefit from this capital source unless you decide to sell or re-finance by extracting some of the equity.
The first step is being organized. Keep a spreadsheet of all relevant costs and income pertaining to the investment property. I would treat each property as it’s own business. This way quantifying total profits or losses is simple and easily legible. Of course, there are so many other dynamics to real estate investing and this is just a basic & simplified overview. If you would like to know more feel free to reach out!