Buying or selling real estate can be a profitable investment. The average return rate for a real estate investment is between 8.6%-10.6%.
While often profit-making, there are responsibilities to be aware of before jumping in. Real estate holding costs need to get paid for as long as a property is owned by an investor.
Curious about investing but uninformed about holding costs? Read on to learn about what they entail.
What Are Holding Costs in Real Estate?
Holding costs, or carrying costs, are reoccurring property expenses that must get paid by the investor who owns the property.
These costs are often paid on a monthly basis. The holding costs can vary due to the loan type on the property, location, or age.
A simple comparison is renting an apartment. As a renter, each month there are certain expenses to pay. These can include rent, electricity, water, and renter’s insurance.
The monthly holding costs in real estate are similar for the investor.
What Are Some Examples of Real Estate Holding Costs?
Often, real estate investments get converted into rental properties. There is a variety of holding costs that come with owning a rental property. Here are a few common holding costs.
Depending on the location, climate, and age of your property, utility costs will vary. Electric and gas costs can be lowered by adding energy-efficient details to your property.
Water and sewer bills are determined by the local price of water. Don’t forget to include trash and recycling disposal. Disposing of garbage can cost up to $50 a month.
Including cable or internet in your property will also cost you a monthly payment.
Rental Property Insurance
If a wide variety of people will be renting out your investment property, you need rental property insurance.
This insurance protects owners from damage and loss caused by renters. It also covers outside effects such as weather damage or criminal activity.
If your property is in an area that is often struck by inclement weather, your base costs may be higher. Other cost factors include the size, age, and condition of your property.
Mortgage and Property Taxes
Flipping a house with the intention to sell it, rather than rent it out, is another great investment opportunity. We buy homes for cash, no matter what the condition.
Fixing and flipping an out-dated home is often profitable. Keep in mind, the owner needs to pay the mortgage before a buyer takes over. Mortgages also need to get paid on rental properties whether or not all the units are occupied.
Property taxes are one of the largest carrying costs in real estate. Property taxes are paid to local governments and used to fund local services.
Property taxes are determined by the value of your property. The value includes the building structure and the land the property sits on.
Be Prepared as an Investor
Don’t let real estate holding costs scare you away from investing. They aren’t a reason to give it up entirely. Instead, prepare for everything that comes with investing.
If you do your research and work hard, you can feel confident as a real estate investor.
For more real estate advice, check out the other articles on our blog.