I talk with clients who want to invest in real estate. Some might be starting as a part-time landlord doing much of the maintenance and work. For others, it's a significant investment, and they are running a large operation with employees and many tenants. I advise all of them how important it is to do a good job of managing finances.
Financial Considerations for Owning Rental Property
Like owning a home or other kind of business, you always need to know what money is coming in and what is going out. Keep tabs on:
Rent Payments – What do you collect from your renters each month? This amount will depend on various things:
- How much you charge,
- Whether you have multiple types of property,
- How long your tenant has held the lease, and
- Other amenities they may be paying for in addition to their rent. Your renters might also need to be assessed fees or fines for actions, behaviors, and rental agreement violations that cost you money in the long run.
Fees & Fines – These are expenses based on your compliance as a property owner with local ordinances as well as state laws. Making sure you are following guidelines carefully can save you money. You should always have an allowance or escrow for such expenses, although trying to avoid needing to pay penalties is good, too.
Taxes – Know what your yearly taxes are and when they're due. If you have employees, you'll also have quarterly payroll taxes like any other business. Being late on taxes can cost you dearly in late fees and penalties. It can be tough to catch up once you get behind. Stay on top of all payments, and don't neglect to file extensions if you need one. On the other hand, keeping up with what you are making and calculating your expenses can sometimes provide a win for you at the end of a tax year. Keep meticulous records and document every single payment you receive for ease in producing documentation in the event of an audit.
Mortgage Payments – Chances are you didn't have the cash to pay for your property, so for some time, you'll need to bear that until it's paid off. Coordinate the timing of making payments with your rent collection, accounting for those tenants who might be a little late.
Insurance – Know your amount and the due date for insuring your property, which includes the premises, the contents of your structure, and amenities on the grounds.
Utilities – What utilities do you provide for your tenants? Do they pay for a water bill, or is there a building allotment. Other general expenses that property owners often absorb for a renter are heat, gas, and electric. Heating can be an owner or tenant provided with natural gas, propane, and electricity, depending on location.
If it looks like there are more ways to part with your money, than there are to earn it with the rental property, that may be true. Remember, however, that the end of the month has a significant payoff, and expenses can be comparatively small. The key is to stay on top of bills, income, and unplanned costs and try to keep a regular budget.
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Charles
Are you interested in accounting outsourcing services for your small business? Contact us today to learn more about the benefits of outsourcing services offered by Washington DC small business accounting firm, Charles P Myrick CPA. (202) 789-8898