When investing in real estate, lots of online content and HGTV shows tend to over simplify or leave out a lot of the costs to owning property. It is common to see the numbers include purchase, repairs, and resale, thats it. The problem is they missed about 15 other costs in the middle!
When it comes to purchasing properties you will go through a settlement company to handle the transaction. This company will ensure the title is clear without any liens, no issues with utility bills, and also that everyone get's paid out according to the agreements. To do so there are fees. On average you can expect to pay around 7-8% of the purchase price in closing costs to buy a property. That means if you are budgeting to buy a property for $100,000 and invest $25,000 in renovations, you now need to account for an additional $8,000 just to get to the closing table.
Once you own the property, you have to maintain and insure the property. This includes paying a monthly or annual insurance premium to protect the building from losses. Now let's account for all the utilities. Gotta have electric to see, and water to clean tools or flush the toilets. There will be monthly electric, gas, water, and sewage that will need to be paid regardless of if the property is under construction or not.
Next is the taxman, or lady....Each property will owe taxes for the county, municipality, and school district it's located in. This can equate to hundreds of dollars a month or annual payments of over $2,000 in many cases. It's important to consider these expenses when investing in real estate in Pittsburgh. I'm a fan of focusing on areas with lower tax rates especially for long-term rentals as that is a guaranteed expense I can't get out of.
Lastly, is interest expense. If you are using a mortgage or private financing to fund your project, those people will need some kind of interest for lending their money. If it is private financing, this can reach over 12%. That is a sizable amount of money if the loan is $100,000. As you can see, these costs can really add up quickly. That is why it's crucial to renovate your properties as quickly as possible, and always try to stay on time with your projects.
Being cognizant of all the costs is what separates good investors versus bad investors. It's very easy to overlook some minor expenses that end up leading to thousands of dollars over the course of a year or two. Always do your research and double check the numbers before buying houses in Pittsburgh!
Comments