The Hidden Costs of Being a Landlord: Are You Actually Making Money?

For many people, owning rental properties seems like an easy path to passive income. The idea of collecting rent every month while the property appreciates in value is enticing. But before you pat yourself on the back for a wise investment, it's important to take a closer look at the numbers. The reality is that many landlords are making far less than they think—or even losing money—due to the hidden costs of property ownership.

Understanding Rental Profitability

At first glance, being a landlord looks profitable. You collect rent from tenants, and after covering the mortgage, it seems like there’s money left over. However, once you factor in all the hidden expenses, that extra income can quickly disappear. Many landlords focus only on their mortgage and rent calculations while underestimating the true cost of ownership.

Vacancies and Tenant Turnover

Even the best rental properties experience vacancies, and every month without a tenant is a month of lost income. Additionally, tenant turnover often leads to extra expenses, including cleaning, repairs, and marketing costs to find new renters. If a property sits empty for just one or two months a year, that’s a significant hit to annual revenue.

Property Maintenance and Repairs

Maintenance is a never-ending expense for landlords. While some maintenance costs are predictable, unexpected repairs can drain your profits. Issues such as leaky roofs, broken HVAC systems, plumbing emergencies, and appliance failures can result in thousands of dollars in repair costs. For example, in Denver, replacing an HVAC system can cost anywhere from $7,000 to $15,000, depending on the size and efficiency of the unit. Even small repairs, like fixing a leaky faucet or replacing a water heater (which can cost around $1,500 to $3,000), add up over time.

Property Management Fees

Many landlords underestimate the time and effort required to manage a property. If you decide to hire a property management company, expect to pay between 8-12% of your monthly rental income in management fees. While this can relieve stress, it significantly cuts into profitability. If you self-manage, you’ll be investing your own time handling tenant requests, maintenance, and rent collection, which is valuable time that could be spent elsewhere.

Legal and Compliance Costs

Landlords must comply with local, state, and federal regulations, which can lead to legal fees and compliance costs. Fair housing laws, security deposit regulations, and eviction processes are complex, and failing to follow them properly can result in lawsuits or fines. Additionally, if you ever need to evict a tenant, you may face months of lost rent and legal expenses. In Denver, the cost of an eviction can range from $1,500 to $5,000, including court fees, attorney costs, and potential lost rent during the process.

Property Taxes and Insurance

Property taxes vary depending on location but are a significant annual expense that often increases over time. In Denver, property taxes have been steadily rising due to increased property values and city development. In 2023, median assessed home values increased by 33%, leading to higher property tax bills. In 2024, the average increase in assessed values was 36%, resulting in a median property tax increase of 17% for single-family homes (source: The Colorado Sun, Denverite). Many landlords forget to account for these rising costs when calculating their profitability. Additionally, landlord insurance is more expensive than a standard homeowner’s policy and is a must-have to protect against liability, tenant damage, and natural disasters. With Denver’s unpredictable weather, including hailstorms and heavy snow, having the right insurance coverage is even more critical for rental property owners.

Capital Expenditures (CapEx)

While maintenance costs cover routine repairs, capital expenditures are major, long-term expenses that must be planned for. Roof replacements, HVAC system upgrades, plumbing overhauls, and structural repairs are unavoidable over the lifespan of a property. Without budgeting for CapEx, landlords may find themselves financially strained when these big-ticket repairs arise.

HOA Fees and Special Assessments

If your rental property is part of a homeowners association (HOA), you must pay HOA fees, which can be quite expensive. Additionally, HOAs sometimes impose special assessments for major community repairs, like repaving roads or upgrading shared amenities. These unexpected costs can quickly eat into profits.

Tenant Issues and Non-Payment of Rent

Not all tenants pay on time, and some don’t pay at all. When tenants fall behind on rent or stop paying altogether, landlords must navigate the legal eviction process, which can take months. During this time, there’s no rental income, and legal fees can add up. Even with a great screening process, bad tenants are an unfortunate reality of being a landlord.

Inflation and Rising Interest Rates

While rental income may increase over time, so do expenses. Inflation drives up the cost of labor, materials, and insurance. If you have an adjustable-rate mortgage, rising interest rates can increase your monthly payments, further squeezing profits.

Time Investment and Stress

Many landlords underestimate the amount of time and stress involved in managing a rental property. Between handling tenant complaints, emergency repairs, and paperwork, being a landlord is far from passive income. If you value your time, the true cost of being a landlord is even higher than it appears on paper.

Are You Actually Making Money?

To determine whether you’re truly making money as a landlord, you need to calculate all expenses—including the hidden ones—against your rental income. Many landlords are surprised to find that after deducting all costs, their actual profit is much lower than expected, or even negative.

A simple way to analyze your rental property’s profitability is through the cash flow formula:

Net Cash Flow = Rental Income - (Mortgage + Taxes + Insurance + Maintenance + CapEx + Vacancy Costs + Management Fees + Legal Fees)

If your net cash flow is negative or too small to justify the effort, it may be time to reconsider whether holding onto the property is the best financial move.

Selling Off-Market: A Smart Alternative

If your rental property is draining your finances and your time, selling off-market could be a smart move. Selling directly to an investor or a company that specializes in off-market deals can help you avoid the hassle of listing, repairs, and long closing times. Where’s Pickles Properties helps landlords get fair cash offers for their rental properties without the stress of traditional selling.

Being a landlord isn’t as easy or profitable as it seems once you factor in all the hidden costs. If your rental property is causing more stress than it’s worth, it may be time to explore selling. Whether you’re tired of dealing with tenant issues, overwhelmed by expenses, or simply ready to cash out, an off-market sale can provide a fast and hassle-free solution.

If you’re ready to explore selling your rental property for a fair cash offer, contact Where’s Pickles Properties today. We specialize in helping landlords offload rental properties quickly and easily, allowing you to move on to better financial opportunities.