What do landlords pay for? Nearly every cost of owning the property itself: property taxes, insurance, the mortgage, maintenance and major repairs, often water and trash in multi-unit buildings, management and legal fees, turnover costs between tenants, and the compliance obligations your city and the federal government impose. Rent covers some of it. The rest comes out of your pocket, whether the unit is occupied or not.
Property Taxes
Property taxes are the one bill you cannot avoid. Your local government assesses the property and charges an annual tax based on that value. Effective rates run from as low as 0.27% in the cheapest jurisdictions to over 2.2% in the most expensive.1Tax Foundation. Property Taxes by State and County, 2025 On a $300,000 property, that is roughly $800 to $6,600 a year before a tenant writes a single rent check.
Falling behind is dangerous. Late payments draw penalties and interest, and prolonged delinquency can lead to a tax lien sale where the government auctions its claim against your property. In the worst case you lose the building. That is why most lenders require an escrow account that collects a share of your estimated taxes with each mortgage payment.
Insurance
A regular homeowners policy will not cover a property you rent out. You need landlord insurance, which pairs hazard coverage for the building (fire, wind, storms) with liability coverage for injuries on the premises. These policies cost roughly 25% more than a comparable homeowners policy because rental properties generate more tenant-damage and liability claims.2Allstate. Homeowners vs. Landlord Insurance for a Rental Property
Many landlords add an umbrella liability policy for claims that exceed the underlying policy’s limits, which is worth considering if you own several units. You can require tenants to carry their own renter’s insurance, but that only covers their belongings and their personal liability. The building is your problem.
Mortgage and Financing
For most landlords the mortgage is the biggest monthly expense, and investment-property loans cost more than owner-occupied ones. The rate premium runs anywhere from about half a point to two full points depending on the lender and your credit.3Bankrate. Current Investment Property Rates On a $320,000 loan, even a 0.75% difference adds thousands over the life of the mortgage.
Lenders also tighten the terms: down payments of 20% to 25% are common, and the escrow requirement for taxes and insurance is almost standard. These fixed costs set the cash flow baseline you have to clear every month, occupied or not.
Maintenance and Major Repairs
The implied warranty of habitability, recognized in most U.S. jurisdictions, requires you to keep the property safe and fit to live in regardless of what the lease says.4Cornell Law Institute. Implied Warranty of Habitability When the heat quits in January or the roof leaks into a bedroom, you pay. A tenant stuck in uninhabitable conditions can pursue rent abatement, withhold rent, or terminate the lease in many states.
Structure, Plumbing, Electrical, HVAC
Foundations, exterior walls, and roofing are on you as the owner. So are plumbing and electrical, including panel upgrades to meet current code. HVAC replacement alone can run $5,000 to well over $10,000, with geothermal systems climbing toward $24,000.5Chase. How Much Is a New HVAC System?
Budgeting and Wear and Tear
A common rule is to reserve 1% to 2% of the property’s value each year for maintenance. On a $400,000 property that is $4,000 to $8,000 a year. Annual service contracts for HVAC typically run $200 to $500 per system and cost far less than emergency replacements.
Normal wear and tear is your cost, not the tenant’s. Thinning carpet, fading paint, drying caulk — operating expenses. Damage beyond normal use is different and can come out of the security deposit, but the baseline aging of the property stays on your side of the ledger.
Utilities in Multi-Unit Buildings
Who pays which utility depends on the property type, the meter setup, and the lease. In single-family rentals, tenants usually put utilities in their own name. Multi-unit buildings are where the landlord’s bill grows.
Water and sewer are often billed to the owner because older buildings run on a single master meter and retrofitting sub-meters is expensive. One tenant’s excessive use or an undetected leak hits your bottom line directly. Trash and recycling pickup are frequently billed to the owner too, especially in urban areas. Falling behind on waste removal invites pests and health code violations that cost far more than the service itself.
If you own a multi-unit building, you also pay for electricity in hallways, stairwells, parking areas, and shared laundry rooms, along with landscaping and snow removal. These are not optional. A neglected exterior drives good tenants away faster than almost anything else.
Vacancy and Turnover
An empty unit is the most expensive thing a rental can do. Between tenants, most landlords face two to four weeks of vacancy. The mortgage, taxes, and insurance keep running while rent drops to zero. Turnover itself triggers a burst of spending: cleaning, repainting, patching, replacing worn flooring, and swapping out appliances that have reached end of life.
A reasonable turnover reserve is one to two months of rent per year. The security deposit rarely stretches far enough, because you can only deduct for damage beyond normal wear and tear. Keeping good tenants in place is one of the highest-return investments a landlord can make.
Professional and Administrative Fees
Property Management
A management company typically charges 8% to 12% of monthly gross rent to handle tenant communications, maintenance coordination, rent collection, and lease enforcement. On a unit renting for $2,000, that is $160 to $240 a month before any other expense.
Legal and Accounting
Attorneys draft leases, handle evictions, and advise on housing law compliance. An uncontested eviction often costs a few hundred to a thousand dollars as a flat fee, with court filing fees on top. Contested cases with a trial run considerably more. An accountant prepares Schedule E, manages depreciation, and keeps you from missing deductions. Both legal and accounting fees are themselves deductible rental business expenses.6Internal Revenue Service. Publication 527 (2025), Residential Rental Property
Marketing and Tenant Screening
Every vacancy means advertising spend: listing fees on rental platforms, photography, signage. Background and credit checks typically run $20 to $55 per applicant. You can pass screening costs to applicants where local law permits, but more jurisdictions now cap application fees, so the landlord absorbs most of this.
Compliance Costs
Lead Paint Disclosure
If your rental was built before 1978, federal law requires specific lead paint disclosures before the tenant signs. You must provide the EPA’s “Protect Your Family from Lead in Your Home” pamphlet, disclose known information about lead-based paint on the property, share available inspection records, and include a signed lead warning statement in the lease.7Environmental Protection Agency. Lead-Based Paint Disclosure Rule (Section 1018 of Title X) Keep signed copies for at least three years after each lease begins. The rule does not require you to test for or remove lead paint, only to disclose what you know. Noncompliance carries federal penalties.
Fair Housing Accommodations
Under the Fair Housing Act, you must make reasonable accommodations in rules, policies, or services when a tenant with a disability needs them, and you bear the cost.8Office of the Law Revision Counsel. 42 USC 3604 – Discrimination in the Sale or Rental of Housing Allowing a service animal in a no-pets building or reserving a closer parking space are the common examples. Physical modifications to the unit itself, such as widening a doorway or installing grab bars, are generally paid for by the tenant, though you cannot refuse to permit them.
Local Licensing and Registration
Many municipalities require landlords to obtain a rental business license or register their units before renting. Annual fees vary widely, and penalties for operating without a required license can be steep, with some cities fining you for every month you fail to register. Short-term and vacation rentals often face additional permits and taxes. Check your local government’s website before your first tenant moves in.
Security Deposits (Not Yours to Spend)
A security deposit is the tenant’s money that you hold in trust. Most states require you to return it within 14 to 30 days of move-out, though some allow 45 or 60. You can deduct for damage beyond normal wear and tear, unpaid rent, or cleaning necessary to restore the unit, but you must provide an itemized written statement for every deduction. Miss the deadline or skip the itemization and you can be forced to refund the full deposit regardless of legitimate deductions.
Some states also require deposits to sit in a separate interest-bearing account with the interest paid to the tenant. Mishandling deposits is one of the most common sources of landlord-tenant litigation. The deposit itself is not an expense, but getting it wrong creates one.
What the Tax Code Gives Back
Most of the costs above are deductible against rental income: mortgage interest, property taxes, insurance premiums, repairs, management fees, legal and accounting costs, advertising, local transportation to manage the property, and the utilities you pay.6Internal Revenue Service. Publication 527 (2025), Residential Rental Property For 2026, mileage for trips related to property management is deductible at 72.5 cents per mile.9Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile
Depreciation is the biggest tax benefit most landlords overlook. The IRS lets you deduct the cost of the building (not the land) over 27.5 years.6Internal Revenue Service. Publication 527 (2025), Residential Rental Property On a $250,000 property with a $200,000 building value, that is roughly $7,270 a year in deductions without any cash leaving your pocket. Improvements like a new roof or renovated kitchen are depreciated separately over the same 27.5-year period.
Repairs and improvements are not the same thing for tax purposes. Repairs are deducted in the year you pay for them. Improvements must be capitalized and depreciated over time. Fixing a broken window is a repair. Replacing every window in the building with energy-efficient units is an improvement. Getting this classification wrong is where landlords run into audit trouble, and it is one of the strongest reasons to work with an accountant who specializes in rental property.