What are carrying costs in real estate?

Real estate is not a onetime payment, it carries certain liabilities that the investor has to pay as long as he tends to keep the real estate. Carrying costs recurring, normally monthly based, the cost associated with owning a property. Unlike, operating costs, carrying costs also include your mortgage payments. The investor has to think of them at the cost of managing a business. The investor has to factors these liabilities when he is purchasing a real estate property. It usually depends upon the attitude of the investor whether it is purchasing the property for a long term or short term use.

The carrying cost of real estate or different if the real estate is a development project or an investment. The carrying cost or both types are mentioned below

They are governed by the governing municipality and location, property value and size of the real estate property.

  • Rental property Insurance:

Homeowners insurance is generally different from this. This includes the loss of income peril coverage and liability.

  • Marketing fees:

They come under short term rentals and vacation rental properties which include advertisement cost, any recurring marketing expenses or Airbnb fees.

  • Property management fees:

This is a monthly payment that is paid to the property manager or Management Company to lease units, manage the property and collect rents.

  • Maintenance:

This is the cost of the ping the property upkeep like painting, changing locks, snow removal and cleaning gutters. They are typically done on monthly basis.

  • Utilities:

They are generally monthly which include water bill, electricity in the hallway of an apartment building or outdoor sprinkler system charges.

These costs include the finishing costs that the investor makes to make his property attractive to future buyers. Like painting, wood work, minor touchups, repair cost and labour cost.

  • Acquisition cost:

The investor has to put the property under his name as soon as possible so that he can start the work and sell the property as soon as possible with a profit. The acquisition costs are paid by the investor but he recovers it in the profit that he makes after reselling the property with some minor work.

  • Mortgage payments:

Generally, these type of investors use short-term interest-only loan which covers the rehabilitation and acquisition of the real estate. The investor recovers it after selling the property at a profit.

They are governed by the governing municipality and location, property value and size of the real estate property.

  • Insurance:

The loan is utilized in fixing up the property. It is called vacant or unoccupied property insurance.

  • Utilities:

These include the things needed while fixing the property like electricity, water, the contractor may also need heating or cooling depending upon the time of the year in which the work is being done, trash collection fees which are monthly. These usually depend upon the property age, properties size and usage. The investor usually forgets these types of payments while he is making the budget. Usually a new building is more efficient so has lower utility cost.

  • Broker commission
  • Capital improvements
  • Selling cost

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