With rising property values, are rental investments still worth the time, effort, and money they require?
In this article, the real estate experts at Gatsby Investment are breaking down the real cost of rental property ownership, using 2025 cost data, to help you determine if direct ownership is the right path for you. We’ll also provide alternative real estate investment options that may provide higher returns with lower time and energy requirements.
Let’s start with a detailed look at the upfront and ongoing costs of owning a rental property.
The Real Upfront Cost of Owning a Rental Property
Here are the upfront costs to expect when purchasing a rental property.
The Down Payment
If you are planning to purchase a property purely for investment purposes (as opposed to the house-hacking strategy in which you live on the property full-time or part-time), you will likely need to put at least 20% down. Lenders typically require higher down payments and better credit scores for investment purchases than they do for primary residence or vacation home purchases.
For a $300,000 property, a 20% down payment would be $60,000.
Closing Costs
Closing costs cover the professional and administrative services necessary to transfer a property from the seller to the buyer. They commonly include fees for loan origination, title research, home inspections, appraisal, escrow, and deed recording. While closing cost amounts vary widely by area and depending on which services your chosen property requires, they typically run 2-5% of the purchase price.
It is worth noting that buyers are now responsible for their real estate agent’s fees as well (which were traditionally paid by the seller before the 2024 NAR Settlement). In many markets, sellers are willing to offer buyers a concession to help cover this cost. But if your seller is not willing to help with this expense, it can add another 2-3% of the purchase price to your closing costs.
For a $300,000 property in which the seller is willing to offer a real estate agent concession, closing costs would range between $6,000 and $15,000. If the seller is not willing to cover your real estate agent’s expenses, closing costs could range between $12,000 and $24,000.
Initial Repairs or Upgrades
Unless you’re paying a premium to purchase a turnkey property that is move-in ready, you’ll likely need to invest some money upfront to prepare the unit for renters, such as painting, cleaning, safety upgrades, code compliance, or even a full renovation.
The initial repair budget will depend on your chosen property. But it’s worth noting that simple interior painting and cleaning can easily exceed $1,000 when you hire professionals to handle it.
Set-Up and Marketing Fees
You’re likely to encounter a few often-overlooked fees as you find your first tenants. For example, you might incur fees to form an LLC to serve as the ownership entity (which protects your personal assets in the event of a lawsuit or financial difficulty). You might also be charged for consulting with tax professionals, marketing your unit for rent, screening prospective tenants, or accessing lease templates.
These fees will vary depending on your unique needs for your new property, but it’s wise to have $1,000-$2,000 on hand for them.
First Month’s Reserves
Many lenders (and smart investors) require 3-6 months of reserves to cover mortgage, taxes, and insurance in case of early vacancy or emergency. While you’re not required to pay these reserves to your lender, this is still cash that you need to have available and set aside for this specific purpose.
If your mortgage payment is $2,000 per month, you could need $6,000-$12,000 in reserves.
Your Time and Effort
Your time is valuable, and it can take a lot of time to find the right rental property. At Gatsby, for example, our team of real estate analysts typically reviews dozens of potential properties, calculating financial returns on each one before choosing a single property to invest in. This adds up to many hours of work, even for our experienced experts with their evaluation systems already in place.
Consider the cost of your time and how much you’re willing and able to invest in your new rental.
The Real Ongoing Cost of Owning a Rental Property
Once you purchase your new rental property, you can expect the following ongoing costs.
For a $300,000 property with a 20% down payment and a 30-year-fixed mortgage at 7% interest, the principal and interest payment would come to around $1,600 per month.
Property Taxes
Annual property taxes vary by location. They are largely based on the property’s value, so they tend to increase over time as property values appreciate (although some states, like California, limit property tax increases). Your property taxes may be rolled into your mortgage payment while you’re paying off the property, but they will still be payable once the property is owned free and clear. Nationwide, property taxes average 1.1% of the property’s value per year.
On a $300,000 property, property taxes would likely cost around $3,300 for the first year, with value-based adjustments each year after. Make sure to check your local tax rates and find out if there are caps on increases.
Insurance Premiums
Landlord insurance costs more than standard homeowners insurance, but it typically covers property damage, liability, and loss of rental income due to covered events. Lenders often require landlord insurance for rental properties and may roll the premium into the mortgage payment to make sure it’s paid.
While rates vary by property, $100 per month is a reasonable estimate for most properties in 2025. If your property is located within a floodplain, you may also be required to carry flood insurance.
Maintenance and Repairs
Even newer properties will require routine maintenance for items like HVAC, plumbing, landscaping, and pest control, as well as occasional emergency repairs. A common rule of thumb is to budget 1–2% of the property’s value annually for routine maintenance and repairs. The older the property, the more you should budget.
For a $300,000 property, owners should budget $3,000-$6,000 annually.
Vacancy Losses
Rental income isn’t guaranteed 12 months a year. Factor in potential vacancy periods between tenants, where you’ll need to cover all expenses with no rent coming in. As a conservative rule-of-thumb, it’s wise to plan as if the property will be vacant one month per year.
If the property’s rent is $2,500 per month, you should work around $210 per month into your budget for vacancy losses.
Capital Expenditures (CapEx)
Big-ticket replacements, such as roofs, water heaters, appliances, or HVAC systems, should be planned for. These costs aren’t annual, but they add up over time. Savvy investors set aside a CapEx reserve fund so the money is available when these items inevitably need to be replaced.
The amount to budget for CapEx depends on the property and the age of the high-ticket elements. $1,500 per year ($125 per month) is a reasonable estimate for the average single-unit rental property.
HOA Dues (If Applicable)
If your rental is part of a condo or community with a homeowners association, you’ll need to pay monthly or quarterly dues. Research HOA fees before purchasing a property, as they can range from less than $100 per month to several thousand dollars per month, depending on the services and amenities provided by the HOA.
Legal and Accounting Fees
You may need professional help with lease agreements, eviction notices, and tax filings as a rental property owner. These services can be periodic or ongoing, so it’s important to consider your needs and budget accordingly.
Income Taxes
While there are many tax benefits of real estate investing, it’s important to understand that rental income is taxable. It may be taxed as earned income or passive income, depending on your situation. It is worth discussing your investment with a tax accountant to make sure you understand both the income tax expense and the income tax savings associated with your rental property.
Time and Energy (Even with Property Management)
As the owner, you can manage the rental property yourself, or you can hire a property manager. A property manager will be able to find qualified tenants, handle move-ins/move-outs, draft and sign leases, collect rents, address resident concerns, handle routine maintenance issues, etc. However, they may still need your input when approving a new tenant or authorizing major repairs.
If you hire a property manager, expect to pay 8-12% of monthly rent for management, plus potential leasing fees for finding new tenants. If the rent is $2,500 per month, this would come to $200-$300 per month. If you don’t hire help, consider how much of your time will be required to properly manage your rental property and how much that is worth to you.
Example of the Cost of Rental Property Ownership in 2025
For an example of the real cost of rental property ownership in 2025, consider a $300,000 single-family rental property with a 20% down payment and a 30-year fixed-rate mortgage with a 7% interest rate.
Upfront Cost
Ongoing Costs
Alternatives to Direct Rental Property Ownership
If the cost of owning a rental property is more than you can afford (or more than rental rates will cover in your market), consider alternative investments that may provide higher returns with less time or effort on your end:
Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) are companies that own income-producing real estate and share profits from the portfolio with investors through dividends. Investors can purchase shares of publicly traded REITs, much like purchasing stocks.
The primary downside to REITs is the lack of control. REITs are whole fund investments, which means you have no input regarding which properties are acquired or sold by the REIT; you might not even know which properties are included in a given REIT’s portfolio.
Private Equity Real Estate Investments
Private equity groups pool funds from multiple investors to finance a specific real estate project (or a portfolio of properties in some cases). This strategy allows investors to buy into a professionally managed real estate deal without shouldering the full financial burden alone.
While this investment model can work well, the minimum investment amounts can still be substantial, with some private equity opportunities requiring over $100,000 per investor. Additionally, these deals are not made available to the public, so you typically need to have a well-connected social network to find private equity opportunities. And in many cases, you need to be an accredited investor, meeting the SEC’s income, wealth, or professional requirements to qualify.
Real Estate Crowdfunding and Syndication
Like private equity, real estate crowdfunding and syndication pool funds from multiple investors for a specific sponsor-managed real estate deal. Unlike private equity, crowdfunding and syndication make deals available to the public. Not only does this make opportunities easier to find, but it also allows for more investors, which reduces the minimum investment requirement to $25,000 (or even less in some cases).
On the downside, many syndication platforms require that investors be accredited. And, while you can hand-pick the project(s) you want to invest in, you do not have control over the specific design or management of the project(s).
Invest in Syndication with Gatsby
Are you looking to reap the benefits of investing in rental property ownership, without the high cost or time required to buy a property directly?
We proudly offer opportunities ranging from single-family flips to multi-family rentals and developments (depending on ever-changing market conditions). We even offer an innovative hybrid called a multi-family build-to-rent (BTR), which allows you to invest in the equity-building ground-up development phase, followed by the income-generating rental phase in a single investment!
Don’t let the high cost of rental properties keep you from receiving the financial benefits of real estate investing. Buy into a syndicated real estate opportunity through Gatsby Investment today!
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