If you are a real estate investor, property manager, or landlord, it is important for you to keep a close eye on your overhead expenses. Even though real estate provides you with an opportunity for passive income and capital appreciation, there are also a lot of overhead expenses. You need to identify trends and changes in your overhead expenses so that you can react accordingly. Otherwise, you could find yourself underwater. Furthermore, some of these expenses could be tax-deductible, but this is something that you always need to talk about with a professional accountant before you start claiming them.
What are a few examples of the top rental property expenses that you should be tracking? Do not hesitate to reach out to an expert who can help you.
First, you need to make sure that you track your one-time costs accordingly. Some of the most common examples of one-time expenses that you might have to pay include:
- Real Estate Agent Commission: Regardless of whether you are purchasing or selling a property, there is a chance that you may have to pay a commission to a real estate agent who helps you find the property. Even if you plan on purchasing the property on your own, you could still be responsible for paying the commission of the other party’s real estate agent. This is something that you will have to work out with the other party.
- Closing Attorney Fees: You may need to hire an attorney to handle the closing paperwork for you. If that is the case, you may need to pay the closing attorney a fee. The other party involved in the transaction may handle this for you, but this is still something you will have to work out with them.
- Inspection: If you decide to get the property inspected before you purchase it, you may be responsible for paying for this expense.
- Appraisal: If you plan on financing the purchase of your property, the lender will probably require you to get an appraisal. You should expect to pay for this as well.
These are a few examples of one-time expenses that you may have to pay if you decide to purchase a rental property. Be sure to track all of these expenses closely.
Then, there are recurring expenses that you may have to pay as well. Some of the most common examples include:
- Mortgage: If you do not purchase your rental property with cash, then you will have to take out a mortgage. Your mortgage is probably going to be drafted out of your bank account automatically by your lender every month. You need to have a reliable way to document when your mortgage is due and how it is paid.
- Home Insurance: Regardless of whether you finance your property, you must have appropriate insurance. This is a valuable investment, and you must make sure it is properly protected. If you decide to finance your property, your mortgage company will require you to get home insurance. You may decide to pay your home insurance once per year, or you could ask your mortgage company to draft it and escrow your insurance payments for you monthly.
- Real Estate Taxes: You also have to pay your real estate taxes. Because you are purchasing a rental property, there is a chance that your real estate taxes might be a bit higher. If you are financing the purchase of your property, your mortgage company may draft your real estate taxes monthly. Otherwise, your real estate taxes are due once per year.
- Utility Payments: Depending on how your lease is structured, you may have to cover utility payments as well. If you have a long-term rental property, then your residents might be responsible for handling utilities. If you have a vacation property, then you will probably be responsible for paying the utilities. A few examples of utilities that you may have to pay for include electricity, gas, water, cable, and internet.
- HOA Fees: Regardless of whether you purchase a condo or a house, there is a good chance that there will be HOA fees. HOA fees can vary widely. Some of them are several hundred dollars per month, while others are several hundred dollars per year. You must make sure that you stay on top of your HOA fees.
- Property Management Company Commissions: If you decide to hire a property management company to help you rent out the property, then you will have to pay them a commission as well. Make sure you understand what percentage (or what monthly bill) the property management company is going to charge.
- Marketing Fees: You must make sure you have a high occupancy rate, and that means you may have to market the property. Depending on how you go about doing so, your marketing expenses could include hiring a firm, paying for a PPC campaign, or purchasing social media ad space.
These are just a few examples of recurring expenses that you might have to cover. It is important for you to have a reliable way to document and track these expenses.
Document Your Expenses Accordingly
Simply writing down your expenses is not enough. You must make sure you have documentation. If you decide that you are going to claim some of these expenses as business expenses, you will need to prove it if the IRS comes knocking. Therefore, you must make sure you keep a detailed record, including every receipt. If you pay the water bill, you should receive a confirmation email. Make sure you print it out and keep a copy of it. If you purchase a new property, you should receive something called an ALTA that will detail all of your one-time expenses. Make sure you save a copy of it.
Even if you go to the store to purchase something for your property, having a credit card statement is not enough. You must make sure you save the receipt, as it will contain information regarding what you purchased at the store. You will need this to prove you were purchasing something for your rental property and not just for yourself.
Track Your Expenses Accordingly
There is no single right way to track your expenses, but you must make sure you don’t let anything fall through the cracks. One of the easiest ways to track your expenses is to use a software program. There are some software programs that will simply save copies of your receipts for you. Then, there are more advanced software programs that can connect to various accounts and automatically import any expenses that you may have incurred. You need to figure out what works best for you.
If you hire an accountant to do your taxes for you, you may want to reach out to him or her to see what he or she recommends. You need to make sure that you do not pay any more money in taxes than you must, but that also means you need to track your expenses appropriately. That way, you have proof of the money you have spent, and you don’t let any expenses fall through the cracks.
Work With Barrett Financial Group If You Need a Loan for a Rental Property
You must make sure you keep an eye on all of your expenses, as you need to make sure you are generating enough revenue from your rental property. If you are planning on purchasing a rental property in the near future, let us help you finance the purchase. We are Barrett Financial Group, and we provide you with access to hard money lenders in Arizona. We can help you find the right loan option to meet your needs, so contact us today to schedule an appointment with a member of our team.