Your investment property can give you excellent returns and stable cash flow with a proper management strategy. However, if you’re a first-time landlord, you’ll need to implement the right system for managing your real estate to avoid frustration and unnecessary financial losses. Here are some tips to help you get the most out of your investment property.
Bookkeeping is essential to the successful management of any business, and rental properties are no exception. Therefore, create a system to track your cash inflows and outflows. You can use a professional accounting system or spreadsheet software for basic bookkeeping. Whichever your preferred method may be, make sure to record all your deposits, rent, and outflows like maintenance expenses, mortgage payments, and property taxes. Bookkeeping will make tax preparation a lot easier for you.
Put All Agreements in Writing
You’ll want to protect your legal and financial interests by having all agreements in writing. If you’re going to use a boilerplate lease, keep in mind that it may fail to capture specific details of the contract. Always ensure that the lease agreement spells out your terms or rules about issues like late rent or noise complaints. It’s also vital that the written contract clearly indicates the allocation of maintenance and repair responsibilities and the reimbursement of related costs.
Don’t forget to document every communication you have with your tenants about the rented spaces or houses. This includes any notice you give to tenants in line with your state’s notice rules.
Plan for Taxes
The income you earn from your rental property is taxable, so you should prepare to file your tax returns according to the law. You may want to consult an accountant or tax advisor about your tax preparations. For example, you may need to start paying Social Security and Medicare taxes at federal, state, and city levels.
Screen Your Tenants
Running a background check on each prospective tenant can save you from unnecessary frustrations later on. For about $50, you can screen a tenant for their credit, criminal, and eviction histories. The objective is to avoid leasing to problematic tenants who may not always meet their rent obligations. You may also call the references to get a better understanding of each potential tenant.
Avoid Renting to Family and Friends
It is difficult to not mix friendship with business when you rent to relatives or friends. If you want to treat all tenants like clients, avoid having any personal relationships with them. This way, it’ll be easier to enforce your lease terms across the board.
Be Patient with the Profit
Rental properties are usually capital-intensive investments with substantial cash outflows at the beginning. For example, most of your rental income may initially go toward mortgage payments. When you deduct the ongoing maintenance and repair costs, you’re probably left with little profit. However, your rental property is still worth the investment, and it’ll eventually pay off.
Getting the right insurance is also an important part of protecting your investment property. Would you like to discuss homeowners and landlord insurance options to cover your property? For assistance with all your coverage needs, contact an insurance professional at Westwood Insurance Agency today.