Minding Business

Forge Stronger Client Relationships by Helping CRE Client Investors Anticipate Expenses

Posted: January 31, 2018 by Anna Jotham

For commercial real estate clients who are considering an investment property, a Realtor who will help establish a realistic budget can be a valued resource. So CRE agents who are seeking to build trust with investor clients can start by helping them anticipate expenses and manage financial expectations before they sign on the dotted line. 

For any property buyer, it’s easy to get stuck on the numbers behind the mortgage total itself. But the truth is, there are many expenses associated with an investment property, and a mortgage is only one of them. And while there are many investors who are savvy when it comes to the financial bottom line, here are some of the expenses you may want to explore with investor clients who could benefit from a better understanding of the full breadth of considerations.

Expenses associated with an investment property—a broad spectrum

Before buying an investment property, potential owners should calculate the following expenses in addition to the mortgage itself, according to “Beyond the Mortgage: Explore Ownership Expenses with Investors” on realtormag.realtor.org. Standard homeowner expenses as well as maintenance expenses should all be anticipated, in addition to any staffing support needs. 

Paying Uncle Sam…and the homeowners’ association

Taxes are considered fixed expenses, even though they do change from time to time at the local, state and national level. Real estate investors will want to know of any tax benefits for which they are eligible, and what deductions they could realize as well, to get a firm handle on their budget. In addition, it’s important to know whether your investment client would be assessed any homeowners’ association fees or other expenses for which they will be responsible, according to www.biggerpockets.com, “3 Rental Property Expenses Investors Should Always Anticipate.” 

Protecting your Assets

For investors looking to purchase a rental property, an insurance policy specifically for renter-occupied homes or properties will be necessary. That insurance may include several special considerations unique to the challenges of renter-occupied buildings. Knowing the cost of the insurance they need can be essential to developing a budget. 

Keeping things Humming

  • Property Management—If a property manager is needed, the expense of that staffing should be added into the budget. On the other hand, if investors intend to manage the property themselves, their compensation for that time should also be calculated as part of the budget.
  • Utilities—Potential investors can decide which costs they will cover for utilities and which will be covered by the tenants under lease. And there are many utilities to consider. How the investor handles these expenses will affect their profit margins. Having a knowledge of local regulations is also helpful, as some towns require the owner to pay for specific services. 
  • Maintenance—buyers should always conduct a full inspection of the investment property, to avoid unanticipated, expensive repairs and to identify any deferred maintenance on the property. The associated expenses should be calculated into the budget. For example, if you know a new roof will be needed on the property in the next two years, it’s important for an investment client to figure that into their budget. Likewise, if an inspection indicates the air conditioning system will need to be replaced, that cost should be anticipated in the budget. A buyer may also wish to negotiate the asking price as these items come to light. In addition, regular property maintenance such as upkeep, repairs and improvements, should also be calculated. This can be challenging, but will greatly help in creating a realistic financial picture. 

A Mortgage is Just the Start of Investment Property Expenses
For investment clients trying to gain full understanding of the financial obligations they would face with an investment property, working with a Realtor who is knowledgeable and helpful can make all the difference. 

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