“Beware of little expenses; a small leak will sink a great ship.”Benjamin Franklin
By now you’ve built your real estate team, learned how to research the area, and learned how to take advantage of the real estate tools and resources available. You are almost ready to start making offers on the many great homes you’ve found. Before you do, however, make sure you understand all the expenses associated with buying and owning an investment property.
Whether you are a first time buyer or you’ve owned a property for many years, understanding the expenses associated with real estate ownership is critical. As we said previously, knowing is half the battle, at least you can plan for it.
Here are some expenses you should be sure to consider when buying a home.
- Retro Fitting – Smoke Detector Installation, Carbon Monoxide Detector Installation, Water Heater Strapping, Sliding Glass Door Hazard Glazing, Seismic Gas Shut Off Valves
- Termite Repairs – Termite inspections set 2 “sections” for repairs. Section 1 is more critical, these are points of infestation that must be repaired. Typically you can get the seller to pay for section 1 repairs. Section 2 repairs are the inspectors recommended repairs. More than likely, these repair costs will fall on the buyer.
- Inspection Repairs – We’ve mentioned several times throughout this book that you MUST get an inspection. Your inspector will comb through the home and provide you with a report on anything that can or should be repaired.
- Aesthetic Repairs – These include normal beautification that homes need following a sale, like painting, patching walls, replacing floor coverings, deep cleaning, window coverings, etc.
Normal Homeowner Expenses
- Closing Costs – Buyers and Sellers both have closing costs which include, but are not limited to, title insurance premiums, escrow fees, recording fees, doc fees, transfer taxes, home warranty, loan origination fees (buyer only), appraisal fees (buyer only), real estate broker commissions (seller only).
- Loan Payments – monthly payments of principal, interest and mortgage insurance (if applicable)
- Real Estate Taxes – annual property tax payments, due in two installments
- Insurance – homeowners insurance, fire insurance, flood insurance, earthquake insurance
- Utilities – monthly bills for electricity, gas, water, sewer, trash, cable, internet, phone
- Lawn Maintenance – monthly payments for lawn upkeep
- Swimming Pool Maintenance – if applicable pools need to be cleaned and maintained by a pool contractor every month
- HVAC Filter Replacement – replacing the filter in your HVAC can extend its useful life and make it run more efficiently
- Light Bulb Replacement – Both indoor and outdoor lighting need replacement bulbs.
Long Term Expenses
- Roof Replacement – The lifetime of a roof depends on where the home is located and what it is made of. Expected life times of roofs run anywhere from 10 to 100 years and can cost 10s of thousands of dollars to replace.
- HVAC Replacement – HVAC units should last about 15 years, under normal use.
- Flooring Replacement – Flooring life spans differ based on material and use. Carpet lasts the shortest amount of time and generally needs to be replaced every 10-12 years. Regular steam cleaning can extend this. Hard surface flooring like tile, wood or bamboo lasts longer and can run from 20-50 years.
- Painting – painting is all depended on use and wear. If you have a formal living room or dining room that is rarely used, it will probably rarely have to be painted. The more walls are touched or rubbed up against the more frequently it will need to be painted. It is safe to assume you will need to repaint every 10 or so years.
- Appliance Replacement – most appliances last about 10 years, routine maintenance can extend the life time.
- Plumbing Replacement – most pipes in homes should last for about 100 years. Over time, products have improved and deficiencies in old materials have been discovered. Make sure and have your plumbing inspected by a home inspector, who will let you know if there is anything to worry about.
- Energy Saving Upgrades – These can include installing tankless hot water heaters, low flow plumbing fixtures, solar panels, and energy efficient appliances.
- Other Upgrades – Upgraded countertops (stone or granite), upgraded flooring (tile, wood, bamboo), backsplashes, light fixtures, water fixtures, etc.
Now that you have a thorough understanding of the costs involved with property ownership, you are ready to make offers. Let’s discuss how to make appealing offers that are more likely to be accepted by a seller.