It’s time to talk about the expenses of being a landlord — and there are many. Some are mandatory, others discretionary. Either way, they can pile up and cause significant stress to you if you don’t pay attention to them, let alone set aside a budget.
Fortunately, not all expenses have to break the bank, and landlords can claim tax deductions. One of these is the capital allowances on investment property, which refers to the deductions for the decline in value of plant and equipment assets. You can also focus your energy — and money — on four major essential expenses:
- Pest control
Let’s look at each area below.
Small problems often turn into bigger ones if allowed to persist without addressing them. You don’t want to wait until the refrigerator dies or the dishwasher leaks water under your kitchen cabinets to pay out of pocket for replacements or repairs.
Landlords need to invest time and money into preventative maintenance on their properties. Some examples include mending fences or leaky taps, checking windows, doors, and roofs for any signs of damage or deterioration, ensuring appliances are all functional (including ovens, dishwashers, and clothes dryers), and general cleaning.
You can also allocate some funds for landscaping services. After all, you don’t want to show off a yard full of dead plants or cut the grass only to see it covered with weeds again within a week. If you want to spend less on maintenance, you can also charge a maintenance fee or add it to the rental price.
Lastly, keep a financial record of any upgrade, repairs and maintenance, and significant changes you’ve made on your unit. You will need the information when you claim deductions like capital allowances.
Repairs are another common expense for landlords. They can range from fixing cracked tiles to changing locks on doors and windows, replacing carpeting or floorboards, or repairing appliances that have broken down.
First, if you don’t want repairs to eat up a huge chunk of your earnings, be religious with maintenance. This step helps you catch problems before they get worse.
Second, set up an emergency fund to cover any repairs once they happen, especially those that cost a lot, like a roof repair. Setting aside even 3 percent of your rental income is already sufficient.
Third, you can charge a flat rate for repairs if you anticipate them more than you do maintenance. An alternative is to get landlord insurance and encourage the tenant to have one. These insurance policies cover damages that are beyond your control, so you don’t have to use your pocket.
Get an insurance policy that covers tenants’ belongings, should they get damaged or stolen. This way, you’ll have peace of mind knowing that you’re fully protected against liability claims.
3. Pest Control
Pests can sink a real estate business if not addressed quickly and properly. Some renters might end the lease early to escape a serious pest infestation problem, causing revenue losses.
In addition to regular cleaning, establish a pest management programme. This way, your tenants won’t have an infestation problem as soon as they move in and be forced to deal with dangerous health problems instead of enjoying their home.
Hire professionals periodically for pest inspections and preventative treatments against common tenant pests such as fleas, cockroaches, ants, rodents, and bedbugs. Regularly remind your tenants to keep the property clean, especially the kitchen and bathroom, to discourage pests. Your effort to implement these measures will go a long way in protecting your investment, which is what you’re all about as a landlord.
Security is another big concern for anyone renting out his property, especially if it’s located in an area where crime rates are high or near neighbourhoods with the same reputation. You don’t want to deal with potential burglaries or problems caused by theft.
Invest money on security measures like installing good locks on doors and windows, installing floodlights at entrances and exits, hiring private security guards, or putting up CCTVs. You can also ask your tenants to do their part by getting them to set up their home alarms systems, as well as keeping personal items hidden.
Lastly, as a landlord, don’t forget that you can vet your tenants. Ensure they have a clean record and good references from their previous landlords. Request for background checks to know their criminal history.
These are by far the four biggest expenses all landlords need to put money towards. Once you’ve got these covered, you’re less likely to have to deal with surprise spending that can hurt your cash flow considerably.