People aiming to profit from their property could be making a significant and costly error in how they calculate their income.
Real estate is often viewed as one of the most valuable investments, especially if you plan to rent out the property, but a common oversight can lead to a hefty cost in the future, as one expert has pointed out.
Former financial advisor Joe Saul-Sehy, speaking on the Afford Anything podcast with Paula Pant, warned that first-time buyers frequently misjudge their gross and net income from the property because they neglect to set aside an emergency fund for it.
He advised landlords to allocate some of their rental income for future maintenance, cautioning: “For people squeezing as much water out of that sponge as they can get, (they) might also be robbing that account, which is a mistake.”
While most individuals understand the need for an emergency fund to cover unexpected expenses like job loss, replacing personal technology or costly medical procedures, properties technically require these too.
This fund can be used to cover sudden major costs such as maintenance, replacements or upgrades to the physical structure, which can be incredibly expensive.
The expert went on to say: “That is a thing new real estate investors get wrong. Their first time they’re like; ‘Oh look, this nets out this much’…yeah no it doesn’t.
“If you want this house to still be pretty 10 years from now and attractive to future tenants…it’s not as rosy as you think it is.”
Host Paula concurred, proposing her strategy that homeowners establish an emergency fund, entirely separate from their personal emergency fund “that represents six months of gross rent” to cover these expenses.
