Tips for Managing Rental Properties for Passive Income
English: 60 Richmond Street East, an affordable rental and rent-geared-to-income apartment building in Toronto, Ontario, Canada. (Photo credit: Wikipedia)
Investing in rental properties is a great way to create a passive income. As time goes on, you appreciate equity in the house while the value of the mortgage goes down in terms of inflation, but your rental prices can increase. You eventually can charge rent that far exceeds the mortgage, helping you to make a nice profit while also paying off a house that you can one day sell for even more profit.
Unfortunately, when you rent out properties, you also have to be responsible for maintaining them. There are many costs that come up over the years that could eat into your profits and potentially even put you in the red. Here are a few tips for how you can manage your rental properties to save money so you can maximize your passive income:
Pre-Screen Potential Renters Thoroughly
Lost rent and legal expenses related to suing tenants for back rent or other damages can take a huge bite out of your profits. While these may never be completely avoidable, you can minimize your risks by thoroughly pre-screening potential renters. Check their credit, their references, and their rental history. If possible, use a rental management company who can do this for you.
Even if you feel like you have found ideal tenants, it is still wise to put aside an emergency savings fund for any potential issues you may face.
Shop around for Management Companies
A good management company can help you find great tenants and can deal with the time-consuming activities of renting a property, such as collecting rents and dealing with maintenance requests. However, not all management companies cost the same. Shop around for management companies so you can find the best service at the best price. You could potentially save yourself a lot of money, helping to maximize your profits.
Stay Up-to-Date on Maintenance
When things go wrong or break in your house, you have to fix them. Since you have tenants, you can’t wait to do it, either. You can reduce your risk of dealing with costly repairs by staying up-to-date on maintenance. Pay particular attention to high-cost items such as the HVAC system, plumbing, and the exterior. You can maintain them by having them inspected regularly, replacing filters on time, keeping the house painted and sealed, and practicing good habits, such as not allowing things to be put down the drain. Be sure to communicate your wishes to the tenants and ask them to agree to certain terms for taking care of the house.
Take Advantage of All Tax Deductions
You will have to declare rent on your properties as income. If you own even just one property that can add up to a lot of income at the end of the year. Make sure you take advantage of all tax deductions for your home to bring down the amount you will have to pay in taxes. Depending on where you live, you may be able to deduct the depreciation of your home, maintenance, the cost of your rental management company, and any legal fees associated with pursuing lost rents or damages. An accountant can advise you on these and other deductions that may be available to you for maximum savings.
Investing in rental properties can be a great way to create passive income, but if you’re not careful, your expenses could eat into your profits. Use these tips to help you manage your properties and save money so that you can maximize your profits and start creating financial independence.
Bio:
Chloe Trogden is a seasoned financial aid writer who covers specific opportunities such as student loans with bad credit. Her leisure activities include camping, swimming and playing her guitar.
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Category: Real Estate
