When people calculate if they can afford a property, they often look only at the mortgage payment. However, in real estate, the "sticker price" is never the final price. To be a successful investor, you must account for the extra bills that come with owning physical property.

The Big Four: P.I.T.I. Plus

You already know about Principal and Interest from the mortgage page. Here are the other "hidden" expenses that can eat into your profit:

1. Property Taxes: Local governments charge you every year based on the value of your property. If your neighborhood gets more popular and your house value goes up, your taxes will usually go up too.

2. Homeowners Insurance: This is not optional. You must protect the building from fire, storms, and accidents. If you are in a special area, you might also need separate Flood or Earthquake insurance.

3. Maintenance and Repairs: Things break. Roofs leak, heaters stop working, and pipes burst. A good rule of thumb is to save 1% of the home's value every year just for repairs.

4. Capital Expenditures (CapEx): These are big-ticket items that you know will eventually wear out, like the roof (every 20 years) or the driveway. Smart investors set aside money every month so they aren't surprised when a $10,000 repair pops up.

Other Costs to Watch Out For

1. HOA Fees (Homeowners Association)

If the property is in a managed community or a condo building, you likely have to pay a monthly fee. This pays for things like the pool, gym, or trash pickup. These fees can be hundreds of dollars a month and can increase at any time.

2. Vacancy (The "Empty House" Cost)

If you are renting out your property, there will be times when no one is living there (like between tenants). You still have to pay the mortgage and taxes even when no rent is coming in. Investors usually budget for a 5% to 10% vacancy rate.

3. Property Management

Do you want to fix a broken toilet at 2:00 AM? If not, you have to hire a property manager. They typically charge 8% to 12% of the monthly rent to handle the tenants and repairs for you.

4. Utilities and Landscaping

Even if the tenant pays for electricity, you might be responsible for water, sewer, or keeping the grass cut. If the yard looks terrible, the city can fine you, and the property value could drop.

The "Closing Costs" Surprise

When you first buy a house, you don't just pay the down payment. You also pay Closing Costs. This includes fees for the lawyer, the title search (making sure the seller actually owns the house), and the home inspection. This usually costs an extra 2% to 5% of the purchase price upfront.

The Bottom Line

Real estate is a "Gross vs. Net" game.

• Gross Income: The total rent you collect.

• Net Income: What is left after all these hidden costs are paid.

Successful investors don't fall in love with a house; they fall in love with the numbers after the hidden costs are subtracted.