What Are Common Landlord Expenses for Rental Properties?

Owning a rental property comes with ongoing costs that can impact profitability. While rental income may seem passive, landlords must account for various expenses to maintain their investment and comply with legal requirements. Failing to budget properly can lead to financial strain or unexpected losses.

Understanding these common expenses helps landlords plan effectively and maximize returns.

Mortgage Interest

For landlords with financed rental properties, mortgage interest is often the largest recurring expense. Unlike the principal portion of a loan payment, which reduces the outstanding balance, interest is the cost of borrowing money. The amount owed depends on loan size, interest rate, and repayment term. A $300,000 loan at a 6.5% interest rate results in approximately $19,500 in interest payments during the first year alone.

The IRS allows landlords to deduct mortgage interest on loans used to acquire, improve, or maintain rental properties, reducing taxable rental income. However, interest on personal loans or loans not directly tied to the rental business is not deductible. If a property is used for both personal and rental purposes, only the rental-related portion qualifies.

Loan structure affects interest costs. Adjustable-rate mortgages (ARMs) can lead to fluctuating payments, while fixed-rate loans provide stability. Refinancing may lower interest rates, but closing costs and loan terms should be carefully evaluated. Some landlords use interest-only loans to minimize initial payments, though these result in higher long-term costs.

Property Taxes

Local governments levy property taxes based on a property’s assessed value to fund public services. The amount owed varies by location, as municipalities set their own tax rates. A rental home valued at $250,000 in a county with a 1.5% tax rate results in an annual tax bill of $3,750.

Assessment methods differ by jurisdiction. Some areas conduct annual evaluations, while others reassess properties every few years. If an assessment seems too high, landlords can appeal the valuation using recent comparable sales or independent appraisals. Some states offer tax exemptions or reductions for specific property types, such as low-income housing or historic buildings.

Late or unpaid property taxes can lead to penalties, interest charges, and even tax liens, which may result in foreclosure. Some landlords escrow property tax payments with their mortgage lender to ensure timely payments, while others manage them independently. Tracking due dates and potential tax rate changes is essential, as municipalities may adjust them based on budgetary needs or shifts in property values.

Insurance Premiums

Landlord insurance differs from standard homeowner’s insurance by covering tenant-related liabilities, property damage, and potential income loss. Premium costs vary based on location, coverage limits, deductible amounts, and risk factors such as crime rates or natural disaster exposure. Short-term rentals or multi-unit buildings often carry higher premiums due to increased claims likelihood.

A standard landlord policy includes dwelling coverage for structural damage from perils like fire, windstorms, or vandalism. Liability protection covers legal expenses if a tenant or visitor is injured on the property. Some policies also offer loss of rental income coverage if the property becomes uninhabitable due to a covered event.

Additional endorsements may be necessary. Flood insurance is not included in standard policies and must be obtained separately through the National Flood Insurance Program (NFIP) or private insurers. Earthquake coverage is another optional add-on in seismically active regions. For furnished rentals, personal property coverage can help replace damaged appliances or furniture, though it does not cover tenant belongings, which require renters insurance.

Repairs

Maintaining a rental property requires ongoing repairs to keep it habitable and compliant with local housing codes. Common issues include plumbing leaks, electrical malfunctions, HVAC failures, and structural wear. Addressing minor repairs promptly prevents more expensive damage, such as mold growth from a leaking pipe or roof deterioration.

Repair costs vary based on property age, tenant usage, and unforeseen incidents. Some landlords estimate annual repair expenses using the 1% rule—setting aside 1% of the property’s value per year—but this may be insufficient for older buildings or those in extreme climates. A more accurate approach involves tracking historical maintenance expenses and adjusting reserves accordingly. A dedicated repair fund helps cover unexpected failures of major systems like furnaces or water heaters.

Marketing Costs

Attracting tenants requires effective marketing. Advertising costs depend on the chosen method, with online rental platforms, professional photography, and listing enhancements influencing expenses. Free listings on websites like Zillow and Craigslist can generate interest, but premium placements or featured ads often yield faster results. Some landlords invest in social media promotions or search engine ads to target specific demographics, particularly in competitive rental markets.

Traditional marketing methods still play a role. Yard signs, local newspaper ads, and community bulletin boards can reach prospective tenants who may not search online. Hiring a real estate agent or property management company to handle marketing and tenant screening is another option, though this typically involves paying a commission or flat fee. Weighing these costs against potential vacancy losses helps landlords determine the most effective approach.

Utilities

Deciding whether to include utilities in rent or require tenants to pay directly affects expenses and lease terms. In multi-unit buildings with shared meters, landlords often cover water, gas, or electricity costs and incorporate them into the rent. This simplifies billing but requires careful pricing to avoid underestimating usage. In contrast, separately metered properties allow tenants to handle their own utility accounts, reducing the landlord’s financial burden.

Certain utilities, such as trash collection and sewer services, may be non-negotiable if municipalities bill property owners directly. Some landlords offset costs by implementing energy-efficient upgrades like LED lighting, low-flow plumbing fixtures, or smart thermostats to lower consumption. In colder climates, heating costs can be substantial, making insulation improvements and energy audits worthwhile investments. Evaluating utility structures and potential savings ensures landlords manage these expenses effectively.

Administrative Expenses

Managing a rental property involves administrative costs, including legal fees, accounting services, and tenant screening expenses. Lease agreements often require legal review to ensure compliance with landlord-tenant laws, which vary by state. Hiring an attorney for eviction proceedings or dispute resolution adds to costs but helps landlords navigate complex legal situations.

Bookkeeping and tax preparation also contribute to administrative expenses. Some landlords handle financial records themselves using accounting software, while others hire professionals to manage rental income, deductions, and IRS reporting requirements. Tenant screening, which includes background checks, credit reports, and employment verification, is another necessary expense. While screening services charge per applicant, thorough vetting reduces the risk of nonpayment or property damage, making it a worthwhile investment.