The real estate gurus make landlording sound simple. Buy a property, find a tenant, collect rent, build wealth. The cash flow calculators show you’ll make $400 a month. The rental comps look solid. The numbers work on paper.
Then you become a landlord and discover all the costs nobody mentioned. The tenant who pays late every month. The $8,000 HVAC replacement in year two. The three months of vacancy you didn’t budget for. The property management company that takes 10% and still doesn’t return your calls. The weekend you spend cleaning up after an eviction instead of being with your family.
Suddenly that $400 monthly cash flow is $100. Or $0. Or negative.
The problem isn’t that landlording doesn’t work—it’s that most people dramatically underestimate the real all-in costs. They budget for the obvious expenses (mortgage, taxes, insurance) but ignore everything else. Then reality hits and they’re shocked when the investment doesn’t perform like the spreadsheet promised.
Here are the real costs of being a landlord that nobody talks about until you’re already in too deep.
The Obvious Costs (That You’re Probably Still Underestimating)
Let’s start with the expenses everyone knows about but still gets wrong.
Vacancy. You budget for 5% vacancy (half a month per year). Reality? In many markets, it takes 30-60 days to turn a unit between tenants—cleaning, repairs, marketing, screening, lease signing. That’s 8-10% vacancy minimum, not 5%.
And if you get unlucky with timing—tenant leaves in November when rental demand is slow—you might sit vacant for 3-4 months. Suddenly you’ve lost $6,000-$8,000 in a single year.
Budget 8-10% for vacancy, not the 5% the calculators suggest. If you beat it, great. If not, you’re covered.
Maintenance and repairs. The standard advice is 10% of rent for maintenance. That’s reasonable for newer properties in good condition. For older properties or those with deferred maintenance, it’s closer to 15-20%.
And it’s lumpy. You might spend $500 one year and $5,000 the next when the water heater dies and the roof starts leaking. That average of 10% only works if you’re budgeting and reserving it every month, not spending it as you go.
Capital expenditures (CapEx). This is the big one people ignore. Roofs last 20-25 years. HVAC systems last 12-15 years. Water heaters last 8-10 years. Appliances last 10-12 years. These replacements are expensive—$8,000-$25,000 depending on the item.
Budget 10% of rent monthly for CapEx reserves. On a $1,500/month rental, that’s $150/month or $1,800/year going into a reserve account. It feels like you’re not “making money” but you’re avoiding catastrophic expenses that wipe out years of cash flow.
Property management. If you hire professionals, it’s 8-10% of rent plus leasing fees (usually 50-100% of one month’s rent when placing a tenant). On a $1,500/month rental, that’s $1,800-$2,250 annually just for management.
If you self-manage, you’re not saving that money—you’re trading it for your time. More on that below.
The Hidden Costs That Destroy Your Returns
These are the expenses that don’t show up in any calculator but absolutely wreck your actual returns.
Tenant turnover costs. When a tenant leaves, you don’t just lose rent during vacancy. You also pay for:
- Deep cleaning ($200-$400)
- Minor repairs and touch-ups ($300-$800)
- Painting ($500-$1,500 depending on size)
- Carpet cleaning or replacement ($300-$2,000)
- Landscaping cleanup ($100-$300)
- Marketing and advertising ($0-$300)
- Application screening fees and background checks ($30-$100 per applicant)
Even a “good” turnover costs $1,500-$3,000. A bad one where the tenant trashed the place? $5,000-$10,000+.
Tenant turnover happens every 2-4 years on average. Budget $2,000-$3,000 per turnover and divide that annually into your cash flow projections.
Legal and compliance costs. At some point, you’ll need a lawyer. An eviction costs $1,500-$3,000 in legal fees plus court costs plus lost rent during the 2-4 month process. That’s easily $5,000-$8,000 all-in.
Even if you never evict, you need legal help with: lease reviews, landlord-tenant disputes, code violations, purchase/sale transactions. Budget $500-$1,000 annually for legal and compliance.
The stupid tax (learning mistakes). You’re going to make expensive mistakes, especially early on. You’ll:
- Rent to someone who seemed fine but destroys the property
- Underestimate repair costs and get gouged by contractors
- Violate a landlord-tenant law you didn’t know existed and get fined
- Miss a tax deduction because you didn’t track expenses properly
- Overpay for insurance or maintenance because you didn’t shop around
These mistakes cost thousands. Consider it tuition in the school of real estate. Budget $2,000-$5,000 in “learning costs” in your first few years as a landlord.
Insurance increases. Landlord insurance is more expensive than homeowner’s insurance, and it goes up. In high-risk areas (hurricanes, floods, earthquakes), insurance can be $3,000-$5,000+ annually and rising 10-20% per year.
What looked like $1,200/year in insurance when you bought might be $2,500/year three years later. Suddenly your cash flow is $100/month lower than you projected.
Property tax increases. Property taxes rise. As your property appreciates or the city reassesses values, your tax bill climbs. In rapidly appreciating markets, property taxes can increase 20-40% over a few years.
Budget for 3-5% annual property tax increases. If you’re not accounting for this, your cash flow projections are fantasy.
Utilities during vacancy. When the property sits empty, you’re paying water, sewer, electric (for showings and maintenance), gas, trash, and sometimes HOA fees. This can be $150-$300/month depending on the property.
Over a 60-day vacancy, that’s $300-$600 you didn’t budget for.
HOA special assessments. If you own a condo or townhome with an HOA, special assessments happen. The HOA needs a new roof, lobby renovation, or elevator repair. Suddenly you owe $5,000-$15,000 in a one-time assessment.
These are unpredictable but common enough that you need reserves for them if you’re in an HOA property.
The Opportunity Cost of Your Time
Here’s the cost nobody calculates: your time.
If you self-manage, how many hours per month are you spending on:
- Tenant communication and requests
- Coordinating repairs and contractors
- Showing properties and screening tenants
- Collecting rent and following up on late payments
- Bookkeeping and expense tracking
- Dealing with emergencies and problems
For most landlords, it’s 5-15 hours per month per property. At 10 properties, that’s 50-150 hours monthly. That’s a part-time to full-time job.
If your time is worth $50/hour (conservative for most professionals), and you’re spending 10 hours/month managing a property, that’s $500/month in opportunity cost. Your $400/month cash flow just became -$100/month when you account for your time.
Either hire property management and accept lower cash flow, or commit to self-managing as a real business (not a side hobby) and get efficient enough that your time cost per property drops significantly.
The middle ground—half-assing self-management while resenting the time it takes—is the worst option. You’re paying in time and stress without the upside of professional management or the cost savings of efficient systems.
The Emotional and Mental Costs
These don’t show up on a spreadsheet, but they’re real and they matter.
Stress and anxiety. Late-night calls about broken furnaces. Tenants who won’t pay rent. The worry about whether you can cover a major repair. The fear of vacancies during slow seasons. The frustration of dealing with difficult people.
Some people thrive on this. Most people underestimate how much mental energy landlording requires.
Relationship strain. Your spouse didn’t sign up to spend weekends dealing with tenant issues. Your kids don’t understand why you’re stressed about “the rental” all the time. Landlording can create tension if you’re not aligned as a family.
Opportunity cost of capital. The $50,000 you have tied up in a rental property could be in the stock market, in your business, or in other investments. If your rental generates 8% returns but the stock market does 10%, you’re losing 2% annually on opportunity cost.
This isn’t to say real estate is bad—it has tax advantages and leverage that stocks don’t—but it’s a real cost to consider.
The lifestyle cost. You can’t easily take a two-week vacation without worrying about tenant emergencies. You’re always on call. You’re tied to the properties in ways that constrain your freedom.
Some investors love this. Others realize too late that the lifestyle trade-offs aren’t worth the returns.
The Cash Flow Lie: When $300/Month Isn’t Really $300
Here’s how the cash flow lie works:
Your property generates $1,800/month in rent. Your expenses are:
- Mortgage: $900
- Property tax: $200
- Insurance: $150
- Property management: $150 (8%)
- Total: $1,400
Your cash flow is $400/month. Looks great!
But wait. Add the real costs:
- Vacancy reserve (8%): $144
- Maintenance reserve (10%): $180
- CapEx reserve (10%): $180
- Turnover reserve ($2,500 every 3 years): $70
- Legal/compliance reserve: $50
- Total reserves: $624
Now your real cash flow is $400 – $624 = -$224/month.
You’re actually losing money on a property you thought was profitable.
This is why so many landlords are shocked when they do their year-end accounting and realize they barely broke even or lost money despite “positive cash flow.”
The properties that actually cash flow $300-$400/month after ALL expenses—not just the obvious ones—are rarer than you think. Most break even or generate $100-$200/month in real cash flow when you account for everything.
How to Actually Budget for the Real Costs
If you want to be a successful landlord, you need to budget for reality, not the fantasy version.
Use conservative expense assumptions:
- 10% vacancy minimum, 15% if you’re in a slower market
- 10-15% maintenance depending on property age and condition
- 10% CapEx reserves, no exceptions
- 8-10% property management even if self-managing (to account for time value)
- $2,000-$3,000 turnover cost every 2-3 years
- 3-5% annual increases in property tax and insurance
Build real reserves. Don’t just project expenses—actually set aside the money monthly. Separate savings account or tracking in your bookkeeping. When CapEx hits, you have the cash ready.
Track every expense. Use property management software (Stessa, Rentometer, Buildium) or a detailed spreadsheet. Know your real all-in costs per property annually. Most landlords have no idea what they’re actually making until tax time.
Calculate true cash-on-cash return. Take your annual cash flow (after ALL expenses and reserves), divide by your total cash invested (down payment, closing costs, rehab, reserves). If you’re getting 6-8% or better, you’re doing well. Below that, question whether the property is worth keeping.
Decide if you’re running a business or buying passive income. If you’re self-managing 5+ properties, you’re running a business. Treat it like one—systems, processes, efficiency. If you want passive income, hire property management and accept lower returns.
Don’t do the half-assed version where you self-manage but hate it and do it poorly.
The Bottom Line
Being a landlord costs more than you think. More in actual dollars, more in time, more in stress, and more in opportunity cost.
That doesn’t mean it’s a bad investment—real estate has built more wealth than almost any other asset class. But it means you need to go in with eyes wide open.
Budget conservatively. Build reserves. Track everything. Know your real returns. And decide if the trade-offs are worth it for you.
The landlords who succeed are the ones who embrace the reality of the business, not the ones chasing the fantasy version sold by gurus and Instagram influencers.
Be realistic about the costs. Build your portfolio anyway. Just don’t be surprised when the spreadsheet and reality don’t match.
