er catastrophe that may damage or destroy your investment property. It also includes liability insurance to protect you in case a tenant or tenant’s guest is injured while on your prop- erty. As is the case with property taxes, if you are paying more for a property than that of the original owner, your insurance premiums will likely be higher than that of the current owner. The best way to zero on this expense is to call your property insurance specialist and give him or her the details related to your purchase along with the coverage you desire for the property. The agent will then be able to give you an exact Repairs represent the items that need to be fixed over the course of a tenant’s use and include such things as leaky sinks, heating and cooling repairs, minor plumbing repairs, and electrical or appliance repairs. They basically represent those costs necessary to keep everything running for the tenant’s use of the facility. They do not include replacement of an air-conditioning unit, remodeling of a bathroom, replace- ment of windows or other additions that increase the useful life of the property. MANAGEMENT FEES Management fees represent the fees paid to an outside party to manage and lease your property. Typically, these rates range from 6 percent to 30 percent of the effective gross income generated by the property and are dependent upon the type and location of the property. Even if you manage the property yourself, you should factor in a management fee, as your time is valuable and you should recognize the econom- ics of your time. I can assure you that when the time comes to sell your property, if the profit and loss statement that you present to a prospective buyer does not show a management fee, the buyer will add one to his or her own analysis, thus increasing the operating costs of the property and thus reduc- ing the price they will pay for the property. UTILITIES Utilities relate to electricity, natural gas, heating oil, water, sewer and possibly trash pickup. Depending upon the type of property you are analyzing, the tenant may pay a majority of these costs. I know that for all my single-family residential units, the tenants pay all of the aforementioned utility costs. In order to get a good indication of what tenants generally pay in relation to a potential acquisition, look at the individ- ual leases. Typically, the tenant’s responsibilities related to utilities will be spelled out in the lease. Additionally, in most quote related to this expense category. REPAIRS AND MAINTENANCE
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Carter Froelich, CPA, is the founder of The Property Ledger™, aWeb- based real estate investment software. To get a free 30-day trial of The Property Ledger™, visit the website at www.thepropertyledger.com.
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