Finances play a big part in owning a rental property. The goal is to generate an income and cover expenses, after all. But one of the biggest mistakes a rental property owner can make is miscalculating their rental’s finances. Having a reliable property management company like Real Property Management Colorado to help you manage your rental property can be a valuable tool to keep track of your rental’s financial progress. Contact us today about how our services could benefit you. And to help avoid rental property financial fumbles, here are five financial mistakes to avoid with your Aurora rental property.
Financial Mistakes to Avoid with Your Rental
Miscalculating the Rent:
Finding the right rent to charge for your property determines how well your rental will do financially. Set it too high and your property will remain vacant for an extended period, costing you significant sums. After all, one of the biggest expenses a rental property owner can face is a vacancy period. No tenants mean no rent and no rent means money coming out of your pocket instead. Alternatively, if you set your rent too low, you may rent it quicker, but you lose out on potential income. This loss adds up over time and could drive your current tenants away should you decide to hike up the rent to match the market when it comes time to renew the lease the following year, putting you right back where you started.
For that reason, it’s important to find the right rent from the start. This is where research and a thorough market analysis come into play. Know your local market. Search for comparable homes that are currently available in your area to see what they’re asking for. And for an in-depth look at what your home could rent for, the team at Real Property Management Colorado is here to help. Our Free Rental Analysis will provide you with a thorough report of the current rental market and help you determine the right rent to charge for your property.
Leasing to Unqualified Tenants:
Did you know that some DIY landlords forgo tenant screening entirely? While you could get lucky doing so and find amazing tenants, the odds really aren’t in your favor should you choose not to complete a thorough background check. Leasing to poorly qualified tenants can cost a landlord big time, sometimes more than letting it stay vacant a little longer to find someone qualified. Bad tenants can cost you time, money, and peace of mind. They can damage your property, stop paying rent, or require eviction, all of which add up to more financial damage to your investment.
For that reason, having a comprehensive tenant screening process is a must. Invest in your application process just like you would invest in your property. Determine your approval criteria and stick to it. Just be sure your process and criteria align with state and federal laws to avoid violating Fair Housing and local laws, whether intentionally or accidentally. And if the thought of screening tenants keeps you up at night, we have the solution for you. Real Property Management Colorado offers full-service property management and tenant placement services, both of which include a thorough tenant application and screening process. Our team knows the laws, so you don’t have to worry about falling out of compliance while searching for qualified and reliable tenants.
Failing to Invest in Improvements:
When was the last time you upgraded your property? The appliances? It’s just a rental. Why should you invest in upgrades when you’re not the one living in it? That mentality can be dangerous to the financial stability of your rental. Who cares about outdated appliances or amenities? Quality tenants, that’s who. Investing in improvements to your rental property keeps it competitive in a highly saturated market. Potential tenants will evaluate your rental based on what it has to offer compared to other properties in the area, where they can get the most bang for their buck, and for the features that help improve their quality of life. If your rental still has carpet in the bathrooms, odd-colored appliances, or bright pink tiling and toilets, it’s time for an upgrade. Luckily, there are ways to do so that add value to your property without breaking the bank. After all, it doesn’t have to be fancy, just comfortable and attractive. Don’t do your rental property and your financial future a disservice by neglecting to invest in updates and improvements or putting the bare minimum into maintaining your property. If you do, you’ll get what you paid for.
Poor Financial Planning:
One of the biggest mistakes landlords make financially is failing to budget for repairs. Things break, sometimes expensive things; it’s unavoidable. Owning any home, be it your primary or an investment property, comes with maintenance costs. The best thing you can do to help offset these repairs is to budget for them accordingly. Set aside a certain amount of money each month to build a buffer against unexpected (and expensive) repairs.
Completing preventative maintenance is another way to help avoid, or at least catch ahead of time, expensive problems. Invest in routine maintenance for all major systems. Repair or replace items when the need arises rather than putting them on the back burner. Proactive management is the best approach when it comes to owning a rental property. Don’t fall into the habit of “I’ll deal with this later.”
Lax Accounting Practices:
Do you know the current financial health of your rental property? Are you properly tracking expenses so you can account for them correctly come tax season? Another rental property financial fumble is forgetting to properly track expenses that can be tax deductible. Owning real estate comes with multiple tax benefits, including mortgage interest, depreciation, operating expenses, and, yes, even property management fees. But if you’re not properly tracking the finances of your rental, you could be missing out and losing money on tax write-offs available to you. Be sure to discuss your options with your tax advisor for more details on what you can and cannot claim with your rental property.
Tracking expenses for your rental can be daunting, especially if you don’t know where to start. Luckily, tracking expenses and income for your rental property is all part of our property management services. We’ll keep track of all the finances and provide you with the proper tax documentation so that you can file accordingly.
Everyone has their own financial goals for their rental property, from generating monthly income to funding their retirement to building equity and value over time. All of these goals and more greatly depend on how well you handle the financial decisions for your rental property. From the monthly rental amount to the tenants you choose to the way you handle maintenance and improvements, the biggest takeaway is to understand and know the pulse of your rental property’s financial stability from day one until the time comes that you’ve reached your goal.
And if you need help doing just that, the team at Real Property Management Colorado is here for you every step of the way. Contact us today about our services and see how we can help you avoid rental property financial fumbles and more!
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