Investors – Have You Calculated Your Operational Costs In Their Entirety?

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Success in real estate investing is a function of how accurately an investor can estimate their overall operational costs.  In order to predict how profitable a piece of real estate would be, an investor must be able to factor in every single item that contributes to the operational costs of owning and keeping that property. They must then figure out how those costs compare to the potential income that could be derived from it.  This applies equally well to property that is held for long periods of time, as it does to property held for generating income as rental property.

Some of the items that contribute to operational costs are pretty obvious.  For example, one must factor in down payments, monthly mortgages, taxes, maintenance costs, homeowners’ association fees and homeowner’s insurance.

Property taxes are paid in every one of the 50 states and vary from state to state.  The range according to a New York Times report is 0.40% (Hawaii) to 2.57% (Texas) of the property’s value, per annum.  If the property were part of a homeowners’ association, the investor would be required to belong to the association as a condition of purchase, and be expected to pay the fees that apply.  A homeowners’ association in very simple terms is a non-profit organization that sets rules that govern homes within a given community.  Condos and townhouses almost always belong to their own association. Fees vary from one association to the next and would typically be proportional to the median home value of the association.

Maintenance costs are not always easy to estimate.  The investor may need to do a little work coming up with good estimates.  To be on the safe side, they can always assume that things will go wrong and should get estimates from professionals as to how much it would cost to fix each item.  They may also need to budget for regular landscaping work and other services that need to be performed on a regular basis.

Insuring the property against threats can never be overemphasized.  Some insurance companies will try to market a comprehensive plan but in most cases that won’t be necessary.  A good insurance plan should cover threats that are most prominent in the area, for example, while flood insurance may not be necessary in the mountains, it would be rather unwise not to have one in the low-lying parts of New Orleans or Miami.

The investor may want to inquire from the previous owner or property manager to get a better idea of a comprehensive list of items that require attention.  When figuring out the operational costs of things that need repair or replacement, it is better if the investor makes overestimates just to be on the safe side.

Asking questions with these few tips in mind will help save real estate investors thousands. For more ideas related to real estate investing, call or visit us a We are the nation’s number one home buying franchise with over 15 years of experience. Our company has a vast assortment of real estate investment and real estate franchise opportunities available to help you grow your real estate business. Come see us for more information.

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