Rental Property Expenses Every Manager Should Know

Success in rental property management requires careful financial planning. This includes covering necessary bills, investing in improvements, and ensuring all rental expenses are paid on time.

In this article, we will share 15 of the most common costs associated with rental property ownership and provide guidance on estimating these expenses. By the end of this article, you’ll have a solid understanding of rental property expenses and how to track them to optimize your real estate business and ensure long-term profitability.

What Are Rental Property Expenses?

Before diving into specific rental property expenses, it’s important to define what these costs are. Rental property expenses (or operating expenses) are all costs associated with owning, maintaining, and operating a rental property.

15 Common Rental Property Expenses

Here are some of the most common costs associated with rental properties:

One-Time Expenses

1. Business Registration and Licenses

Before renting out a property, many landlords and rental property owners form a business entity such as an LLC. While this is a one-time cost, it should be accounted for in your budget. Fortunately, these expenses are typically tax-deductible, but if you have questions, be sure to reach out to a tax professional for help.

Estimated Cost: $50-$500

Details: LLC registration fees vary by state; some cities also require rental licenses or permits.

2. Appraisal Fees

If you’re buying or refinancing a rental property, you may need an appraisal. While appraisals help determine a property’s fair market value, they also represent another deductible expense.

Estimated Cost: $300 - $600 per property

Details: Required during purchase or refinancing.

3. CapEx or Capital Expenditure

CapEx, or capital expenditure, refers to one-time, significant expenses related to major property improvements or replacements—like a new roof, HVAC system, or appliances. Unlike routine maintenance, these costs are expected and typically planned for in advance. For example, if a roof needs replacing in five years at a cost of $8,000, setting aside about $133 per month helps ensure you’re financially prepared when the time comes.

Estimated Annual Reserve: $1,500 - $3,000+

Examples:

• Roof replacement: $6,000 - $12,000 (every 15-25 years)
• HVAC: $4,000 - $8,000
• Appliances: $1,000 - $3,000

Recurring Expenses

4. Marketing and Advertising

Promoting rental properties through online listings, social media, and print advertising is necessary to attract tenants.

Estimated Cost per Listing: $50 - $200

Details: Includes online listings, photos, signs, and possible agent fees.

5. Tenant Screening Fees

Tenant screening, including credit checks and background reports, is an essential expense. Landlords can conduct screenings themselves or hire real estate brokers, who typically charge a fee.

Estimated Cost per Applicant: $30 - $50

Details: Background checks, credit reports, employment verification

6. Property Taxes

Property taxes are unavoidable and vary by location. While landlords can take advantage of rental property tax deductions (click here for a rental property deductions checklist), this remains a key expense to budget for.

Estimated Annual Cost: 0.5% - 2.5% of property value

Example: On a $250,000 property: $1,250 - $6,250 per year

7. Maintenance and Repairs

Regular maintenance and emergency repairs are crucial for keeping properties in good condition. Proactive maintenance can even reduce insurance premiums and justify rent increases.

Estimated Annual Cost: 1% - 2% of property value

Example: $2,000 - $5,000 per year for mid-range properties

Details: Includes landscaping, plumbing, HVAC tune-ups, etc.

8. Utilities

Electricity, water, internet, security, and waste removal are common utility expenses. Depending on lease agreements, these may be covered by the landlord or tenant.

Estimated Monthly Cost: $100 - $400 (if landlord-paid)

Details: Water, sewer, trash, electric, internet (if included)

9. Property Management Services

Landlords who hire property managers pay property management fees ranging from 6% to 10% of the monthly rent. Property management services can be a worthwhile investment for those with multiple rental properties.

Estimated Monthly Fee: 6% - 10% of monthly rent

Example: On $1,500/month rent = $90 - $150/month

10. Rental Property Insurance

Rental property insurance, also known as a landlord policy, covers property damage, liability protection, and lost rental income in certain situations. This type of insurance is more comprehensive than a standard homeowner’s policy.

Estimated Annual Cost: $800 - $2,000

Details: Depends on property type, location, and coverage

11. Vacancy Costs

When a rental unit is vacant, landlords must cover ongoing expenses like mortgage payments, utilities, and maintenance costs without rental income. Fortunately, some vacancy costs can be deducted at tax time.

Estimated Monthly Cost: Equivalent to 1 month’s full expenses

Example: Mortgage + utilities + insurance = $1,000 – $2,500/month

Tip: Budget for 1-2 months of vacancy per year

12. Travel Expenses

Landlords often need to travel for property maintenance, inspections, and tenant meetings. These travel expenses can add up, especially for long-distance landlords.

Estimated Annual Cost: $500 - $2,000

Details: Varies based on proximity to property and frequency of visits

13. Office Expenses

Office expenses include software subscriptions, phone services, postage, and other administrative costs associated with managing rental properties.

Estimated Annual Cost: $200 - $1,000

Includes: Property management software, postage, printing, internet, phones.

14. Accounting and Legal Fees

Landlords often require accounting services for bookkeeping and tax preparation. Legal fees may also arise for ease agreements and dispute resolution. A good rule of thumb is to budget an allotted amount of money each year to dedicate toward these services.

Estimated Annual Cost: $200 - $1,000

Details: Includes tax prep, lease drafting, and occasional legal consultations.

15. Mortgage Payments

If the rental property is financed, mortgage payments are a major recurring expense. Mortgage interest payments on rental property mortgages may be tax-deductible.

Estimated Monthly Cost: Varies by loan and location

Example: On a $250,000 loan at 6.5% interest for 30 years = about $1,580 per month

Note: Includes principal + interest, not taxes or insurance.

How to Estimate Rental Property Expenses

To accurately estimate these costs, consider the following techniques:

1. Examine a Profit and Loss Statement

A profit & loss (P&L) statement is a financial report listing income, expenses, and net profit (or loss) from a rental property over a specific period.

Even if you own just one rental property, using software to track property finances can improve accuracy and help you identify areas for cost reduction. When reviewing a P&L, look for unclear or grouped expenses. Breaking costs down by vendor or category makes it easier to identify opportunities for savings.

2. Speak to Local Property Managers

Rental properties in the same region often share similar expenses. Speaking with local property managers can provide insight into common costs like property taxes, maintenance, and tenant screening fees.

3. Network with Regional Real Estate Investors

Expenses may vary between different locations, but networking with experienced real estate investors can help you benchmark costs and identify potential savings opportunities.

4. Contact Utility Companies

Utilities are a major rental property expense, with costs varying based on location, property size, and provider rates. Contacting utility companies can help you estimate these expenses and explore options for reducing costs.

Managing Rental Property Expenses as a Landlord

Effectively managing your rental property business requires careful financial planning and expense management. Landlords who accurately estimate and track expenses are ultimately in a stronger financial position.

A reliable rental property accounting tool can help streamline income and expense tracking, tax reporting, and financial planning. Ledgre is one such solution, offering key expense tracking services for landlords.

By utilizing tools like Ledgre and implementing effective strategies, landlords can maximize rental income and improve long-term profitability.