Income From Rental Properties
When you own rental properties, there is a good chance that you can have an additional source of income. Your tenants will pay you a predetermined amount of rent every month. Once you pay the mortgage payment, you can make a profit. If the home is free and clear, the amount of profit increases. Sometimes there are other expenses that could reduce your profits. One important facet of rental properties is screening your tenants. Even after you screen tenants, you still stand a chance of renting to tenants who could cost you money.
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Profit
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When you rent properties, if your income from rent is greater than your expenses, you will earn a profit. Sometimes tenants will miss payments and this cuts into your profit margins. If you have a mortgage that needs to be paid and you are counting on the rent from a tenant, the mortgage will have to be paid out of your own pocket. Tenants who miss two or three payments can really decrease your profits.
Expenses/Utilities
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There is also general maintenance that needs to be done. Tenants through normal wear and tear will incur a number of expenses such as breaking windows, hinges on doors, screens, carpet replacement and plumbing repair. There could be other expenses based on what is written into the rental agreement. You also have to take into consideration the utilities. If the landlord pays the utilities, such as the water and electric bill, these can become costly. If a tenant does not have to pay utilities, they probably won't try to limit their usage.
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Eviction
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Landlords will occasionally start eviction proceedings. Whenever you evict a tenant, your costs increase substantially. You will have to appear in court and incur court costs. You may be able to recoup certain court costs, but getting them from your tenants may not be easy. There will be cases where tenants will destroy the property intentionally. When there is severe damage, the cost of repair can run into thousands of dollars. A homeowner's insurance policy will cover some expenses, but if you file too many claims, your cost of insuring your property will increase as well.
Vacant Units
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When rental units are empty, the landlord loses money until he finds someone to occupy the unit. Each month a unit is empty the landlord loses money. Advertising expenses are incurred to rent out a unit. Depending on your methods of advertising you could incur some costs in this area as well. It's a good idea to try and find some free publications to place your advertisements.
Renovations
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A landlord will periodically renovate an entire apartment complex. The amount of money spent can be in the thousands. This will decrease profit margins even more. When renovations are taking place, the landlord may not be able to fill units until the work is complete. The ideal scenario is to have apartment units that are well kept, good reliable long-time tenants, and minimal expenses and costs due to maintenance and repairs.
Taxes
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Rental income should be reported, for tax purposes, in the year it is received. Any expenses incurred during the course of renting can be deducted from your rental income. This reduces the amount of income you claim on your taxes.
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