Running a successful rental business is about ensuring your cash flow remains positive. Every investor should keep their expenses below their income to thrive; it’s wealth management 101. But that is often easier said than done. Rental properties usually have only one source of income, which is the rent tenants pay. On the other hand, expenses are a dime a dozen. From periodic maintenance to unplanned repairs and monthly utilities, landlords must keep up with several bills. Thus, if you don’t pay enough attention to your finances, you might spend more than you earn.
Do you want to avoid mismanaging your finances? Are you looking for better strategies to stay profitable? Then, stick around as we discuss 5 tips for managing rental income wisely.
5 Tips for Managing Rental Income Wisely
Create an Emergency Fund
One of the biggest consumers of your rental income is the money you allocate to repairs. Whether it’s leaking pipes or faulty HVAC systems, rental properties and repairs are two peas in a pod. Since you can’t escape that reality, the best thing to do is face it. In other words, create an emergency fund that helps you replace or rebuild when necessary. With most repair work, time is often of the essence, and if you have cash on hand, it can help you resolve the issue quickly before it escalates.
Choose Your Renovations Wisely
Minor cosmetic changes can be a great way to spruce up your home and attract new tenants. However, it’s crucial to note that only some upgrades are worth the investment. Some additions are pretty, but they only add a little value to your home.
For example, a massive foyer remodel might make the entrance of your home more appealing, but it has little monetary value. On the other hand, a new paint job can completely transform your home, making it look new and fresh. Depending on the quality and color of choice, you could earn as much as 80% in returns.
Hire Professional Contractors
Many landlords often try to find the cheapest solution when it comes to repairs. While that’s a great way to save a few bucks, it can also be counterproductive, especially when you hire the wrong help.
Always seek out professional contractors to complete your renovation or repair projects. Reputable experts might be more expensive upfront, but their work quality often has a longer lifespan and a better finish.
If you’re looking for ways to cut costs, it shouldn’t be something other than cheap labor. But, unfortunately, poor workmanship can leave you with more significant issues than when you started. Professional Property Management Group of Northern Virginia can help track rental income and expenses so that you can save money in other ways.
Inspect Your Property Often
Many landlords find it hard to carve out the time to visit their rental properties, which can be a problem. However, failing to evaluate your unit’s condition periodically could allow hidden issues to fester and grow. For instance, a basement your tenants hardly ever use could harbor a nasty mold infection. If left unchecked, it could be detrimental to your tenants’ personal belongings and health, which you would be liable for in court.
Hence, it would be best to schedule regular inspections around your property. You can easily outsource this task to your property manager if you’re a long-distance landlord. It’ll also be great to perform a move-in and move-out inspection to avoid disputes with your renters later.
Take Advantage of Tax Breaks
Landlords can legally claim several tax deduction policies, according to the IRS. However, many people find taxation dull, leaving them unaware of which breaks they can use to save money.
For example, besides plane tickets and gas money, did you know you can also include car repairs and vehicle registrations under travel costs? An excellent accounting tip for year-end taxes is to talk to a tax lawyer and find out what other expenses you can report.
Getting Ready for Year End
Keep Your Records Separate
You might have the habit of merging all the income and expenses if you own multiple rental properties. However, this management method can be problematic because it prevents you from tracking each property. When you keep your records separate, it makes it easier to see how each unit is performing. It also makes filing your taxes more manageable.
Track Each Expense
It would be best to form a habit of tracking every expense. Many landlords put off writing down their expenses till tax season, and this can make recalling information more difficult. Set aside time every week or month to take stock of your expenses. It would be beneficial to keep receipts, so you remember the exact figures.
Use Digital Record-Keeping
You can also use modern technology to prepare for tax season. Find a manageable digital record that helps you log your income and expenses. Many property management apps support this function, and it would be a great save when filling your Schedule E form.
With these 5 tips for managing rental income wisely, you should be able to keep your business profitable. Planning how to track, spend, and save your rental payment can help keep your cash flow positive and prevent you from losing money.
If you need help getting ready for the next tax season or planning your property finances, hire an expert property manager. Such a professional can devise effective strategies to make your money work for you.