Before you begin to work on your real estate investment business plan (primary residence or one to landlord) you need to know about all of the relevant fees. On the surface, real estate investments are amazing– you buy a property, you find a tenant, the tenant pays your mortgage, and best of all you have a positive monthly cash flow.
There’s only one slight problem. There are many real estate investment fees that the average investor is not aware of. Let’s take a look, shall we?
1. Mortgage insurance.
If you don’t put down a large enough down payment on your real estate property you’ll have to pay a premium known as, “mortgage insurance.”
2. Home insurance.
If you have anything valuable in your home that you want to protect or you want to protect the whole property, you’ll need home insurance. If you decide to find a tenant for your real estate investment, you’re going to need renter’s insurance.
3. Lawyer costs.
Your Real Estate Lawyer may be very helpful and more than willing to help you out. But when the time comes to pay you won’t be too happy with the bill. A lawyer will charge at least $1,000 for all of the legal paper work and documentation to be completed.
4. Closings costs.
From regional to national taxes to real estate agent fees. Closing a real estate property is not cheap by any means. You should have at least $5,000 saved to deal with the closing fees. If the closing fees come as a surprise to you then you’ll find that your real estate investment isn’t as lucrative any more.
5. Moving costs.
If you plan on renting out the property then you won’t have to worry about moving. If you move into the piece of real estate, you’ll soon find out how expensive and time consuming the move can be.
6. Cost of consumption.
It seems like the expenses never end with a real estate investment.
If you decide to treat the real estate investment as your principal residence, you’ll have to deal with:
- Home purchases. Anything from a new couch to a lawnmower will have to be purchased when you move into your new place.
- Home maintenance. Let’s say your furnace breaks or you accidentally break one of the windows, it becomes another expense that comes along with home ownership.
Now let’s pretend you rent out the property, what will the costs be like now?
- Everything. Anything that breaks is on you. You have to pay for everything. Unless your tenants deliberately break something, you’ll have to pay for it. Let me say that again– as a Landlord of a real estate property YOU HAVE TO PAY FOR EVERYTHING.
7. Opportunity cost.
The capital that you’ve put towards your real estate investment is money that you could’ve invest in other ways. You could’ve invested this money in stocks, bonds, mutual funds or many other investment vehicles (including retirement). Investments aside, this is also money you could’ve put towards enjoying your life. You could’ve travelled the world, bought a new car, or gone to visit family. With the capital tied up in real estate, it becomes money you can no longer access.