How to Include Property Tax in the Lease Payment
Owning rental property can be a gamble or a positive experience, depending on how well you perform as a landlord. When the property is vacant, you must attract renters who are responsible. You want to require market rents (rent amount that is typical of what similar homes in the same area bring), but not be so high as to price yourself out of range. The rent you charge should cover all of your outgoing expenses on the property, including taxes.
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Things You'll Need
- Breakdown of complete payment required by your mortgage company.
- Tax statement on the property
- Lease contract
Instructions
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Check your mortgage statement to see if taxes are included in your payment. Your payment may cover principal, interest, insurance and property taxes. If there is no mortgage on your property, retrieve your most recent tax statement. In the lease amount you have agreed to with your new tenants, make certain that the amount is sufficient to cover the market rents which should include your taxes.
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Calculate the yearly taxes to see what the monthly add on to the lease amount needs to be. For example, assume your yearly taxes are $2,400 and divide that by 12 months which equals $200 per month -- that should be included in the lease amount. If your base monthly rent was $800 per month, increase rent to $1,000 to cover property taxes.
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Advertise the rental property at $1,000 per month so your new potential tenant will be expecting a $1,000 monthly lease payment. Use this figure in the new lease when writing up the lease agreement.
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Tips & Warnings
If you do not have a mortgage on your rental property, set up a savings account for taxes (and insurance). When rent is collected, extract the monthly portion to cover outgoing expenses (taxes and insurance) and place it in the account so that when the bills come due, the funds will be readily available.
Pre-screen your tenants before writing a lease agreement. OK credit is not proof of how your tenant will pay the rent, but it is an indicator. Check past rental references and use a service to run a background check.
Market rent is the rent amount that similar homes in the same area bring. This amount is shown on an appraisal that would have been done during the loan process. If you have no loan on your property, contact and speak with an appraiser who is familiar with the area where your rental home is located.
With so many foreclosures since 2008, rental properties are in big demand. Credit reports containing a foreclosure will not look good; however, the foreclosure may not be an indicator that your applicant will be a bad tenant. Look further. Ask questions. Verify work history, and other aspects of credit. Always require an upfront deposit.
