The Hidden Costs of Real Estate Investing—And How to Plan for Them

Red Mug Investments

Real estate investing can be a powerful path to long-term wealth, but only if you run the numbers right. While many new investors focus on purchase price, renovation costs, and projected rent, the real profitability of a property often depends on the expenses you didn't see coming.

At Red Mug Investments, we've learned (sometimes the hard way) that success in real estate isn't just about finding the right deal—it’s about knowing what that deal will really cost you.

Here are some of the most common hidden costs of real estate investing and how we plan for them to protect our bottom line.

Closing Costs

What Investors Miss:

Closing costs aren't just a buyer’s problem, they're an investor’s reality, especially when doing multiple deals a year. These can range from 2% - 5% of the purchase price.

What’s Included:

• Title insurance

• Attorney fees

• Transfer taxes

• Loan origination fees (if financing)

• Recording fees and inspections

How We Plan for It:

We always include closing costs in our up-front deal analysis and work with investor-friendly lenders and attorneys who can help reduce unnecessary fees.

Surprise Repairs and Overlooked Renovation Costs

What Investors Miss:

Even after inspections, you'll almost always find something unexpected once demo begins—especially in older Chicago properties.

Examples we've encountered:

• Rotted subfloors

• Unpermitted plumbing or electrical

• Structural issues behind walls

• Hidden water damage

How We Plan for It:

We build a contingency buffer into every renovation budget and prioritize thorough walk-throughs with our GC team before closing on a deal. 

Holding Costs

What Investors Miss:

If you're rehabbing or waiting for a unit to lease up, you're still on the hook for monthly expenses—including mortgage, taxes, utilities, and insurance.

Even delays of a few weeks can cut deeply into expected profits.

How We Plan for It:

We create a detailed project timeline, factor in possible delays, and always budget at least 3–6 months of holding costs into our analysis.

Utility Upgrades and City Requirements

What Investors Miss:

Upgrading electrical panels, adding sump pumps, separating utilities for tenants, or meeting energy efficiency requirements in Chicago can add thousands.

How We Plan for It:

We consult with architects and mechanical, electrical, and plumbing pros early in the planning process and stay current with Chicago building codes.

Tenant Turnover & Vacancy

What Investors Miss:

It’s easy to assume consistent cash flow, but vacancies are part of the game. Add to that the cost of repainting, cleaning, and listing fees every time a tenant moves out.

How We Plan for It:

We run all of our cash flow models assuming 5–10% vacancy annually and prioritize quality tenant screening to reduce turnover.

Property Management (Even if You DIY)

What Investors Miss:

Even if you're self-managing, your time has value. Plus, you'll likely still pay for leasing agents, maintenance calls, and software tools.

How We Plan for It:

We either budget a property management fee or assign a time value to self-management in our ROI calculations—because burnout is real.

Tax Surprises

What Investors Miss:

Property taxes can jump dramatically after a sale or renovation. Cook County reassessments can catch investors off guard if not factored in.

How We Plan for It:

We look at recent sales comps and call the assessor’s office to estimate future taxes—not just current ones. We also work with a tax professional to explore depreciation and deductions.

Insurance Gaps

What Investors Miss:

Standard homeowner insurance won't cut it for investment properties—especially during rehab. Vacant property insurance, builder’s risk policies, and liability coverage are all essential.

How We Plan for It:

We partner with insurance providers who specialize in investment and rehab coverage and get quotes early to avoid delays.

Final Thoughts: Plan Smarter, Not Just Bigger

The most successful investors aren't the ones who find the cheapest properties, they're the ones who understand the true cost of ownership and build in margin for the unexpected.

At Red Mug Investments, we've built our model around full transparency and risk-aware planning. When we account for the hidden costs up front, we gain clarity, reduce surprises, and make better long-term decisions.

Looking to partner on a deal or learn more about our investment approach?

Reach out to us and let’s talk!