Sneaky Rental Property Expense List and How to Avoid Them

Most rental property expenses are fixed expenses. Property Management, taxes, insurance, etc. are all rental property expenses that are locked into our businesses. Wouldn't it be great if you could cut your expenses down each year or at least, be prepared for them?

The good news is that you can do that. Every year you have the opportunity to cut your expenses in many ways. If you do not try to reduce your expenses, you are leaving money on the table.

Money that should be in your pocket because these rental property expenses you can do without.

Always be on the look out for lower prices and fees for everything.

So, what are some of those expenses and how should we handle them?

Rental Collection Software and Credit Card Processing

As a landlord, you may choose to manage your properties yourself.

I personally use property managers for most of my properties but I do have some I manage myself.

When you manage properties yourself, it is a must to have an online company handle the managing of the properties. There are many great things that these online companies do:

• Online payments
• Automatic reoccurring monthly payments
• Online maintenance requests for tenants
• Manage the property expenses and income
• Track leases
• Track tenants
• Property reporting
• and much more

There are many companies out there that charge a fee for this. Some charge monthly fees for their service that you will have to eat the cost.

How You Can Save Money In Your Rental Property Expenses

But there are some companies like Avail that do not charge anything at all for their service.

I have personally used Avail and recommend you to use them for your properties. The system is very easy to use and you don't even pay for any of it! 🙂

FREE: ACH transaction for your tenant
$2.50 fee: for ACH transactions
2.5% fee: Debit & Credit card transaction

Book Keeper (& Software) Rental Property Expense Can Be Eliminated

Do you have a book keeper? One that tracks all income and expenses every month? While these are very helpful and fulfill a vital part of your business, you possibly could do without one.

Every month, you should receive a statement from your property manager. This statement should itemize everything for each property.

If you manage the property yourself, you should keep track of EVERY expenses you incur for each property and the income.

I personally suggest that you document the income or expense as they occur. Don't put it off for another day. Do it right then and there. It will only take 1 minute to get it done and save you lots of head ache in the long run. Waiting for the end of the month to do all your income and expense documentation is problematic as well as a pain.

Some people pay for an actual book keeper who does the books for them. Others even have software they pay for that manages their books. If you don't have any employees for your business, I suggest doing it yourself.

Book Keepers are not that expensive but do cost money every month.

Why not try to do it yourself? This is a rental property expense you can cut out.

Book Keeping Software

There are many book keeping software companies out there that want your money. Their products are nice and do a lot fancy things that your business may not really even need.

This can potentially be another hidden expenses that you may not need to pay. For all of my properties, I have found that you can do most of what the book keeping companies offer with Google Drive or Microsoft One Drive.

Both of these offer free storage and a free version of Excel.

How You Can Save Money

Make yourself a spread sheet that includes income and expenses. For your accountant doing your taxes, be sure to break down your income and expenses so he can account for them in your tax return.

On the left side, have a list of your properties.

Along the top, have a list of the income and rental property expenses.

At minimum, you should have these separated into different columns:

• Income should be: Rents, Security Deposit, Other Income.
• Rental Property Expenses should include: Repairs, Supplies, Maintenance, Management Fees, and Legal Fees.

Here is an example of what I use:

Having a spreadsheet like this can really help you to cut costs and keep track of your business.

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Capital Reserve Expense

It is easy to overlook a crucial expense that most people do not account for. Capital Reserves must be a rental property expense you put into your expenses ever month. This can be as much or as little as you would like it to be. I recommend to all my rental property students to set aside 5%-10% of each months rent as capital reserves for future expenses.

A furnace may go out in the middle of winter or the water heater could spring a leak at a moments notice. You need to have money saved up for these future rental property expenses.

A tip would be to keep that money in an interest baring money market account you can have quick access to.

I use CIT Bank. They are usually the highest interest rate I can find. In the past, they were as high as 2.45% monthly return on your money stored there.

If you sign up with them, they are currently giving a $100 bonus if you get referred.

Here is where you can find the bank: http://masterpassiveincome.com/bank

Rental Property Expense – Insurance

From the first day you own the property, you should have homeowners insurance on all the real estate you own. Hopefully when you bought each rental property you found the best and least expensive insurance out there.

But…

Insurance rates change.
Insurance companies change.
Insurance salesmen change.

It may not be every year that you should shop for new insurance for your rental properties but it should be at least, every other year.

When it is time to renew your property insurance, go get at least two more quotes for insurance with other companies. Look to change up the coverage too. Changing the deductible can lower your cost.

A tip is that, depending on the property, you could lower your insurance by getting 60% replacement value coverage instead of 100%. The reason to do this would be because the property may only be worth $30,000 and the replacement value could be $150,000.

If the entire property burnt down you would get $90,000 back (theoretically, so talk to your insurance broker).

Take that $90,000 and buy three others just like it.

Remember, things change and you may lower your rental property expenses by $100 or more just by shopping around.

Homeowners Association Fees

In some areas of the country, there are homeowners associations. These associations manage the properties in a certain area and those that are in the association.

When you buy a property within an association, be sure you read everything in the agreement. You are signing a contract saying what you can and cannot do.

Check out this article/podcast where Michael shares his experience with HOA's.

Municipalities Fees and Charges

Many cities and municipalities mange things like sewer, water, trash, etc. These items CAN be tied to the property, NOT the tenant.

With a cable bill, telephone, electricity, those are usually private companies that cannot go after the homeowner. BUT, when the government has it's hands in the cookie jar, they never let go. They will pass laws and ordinances making the homeowner liable for the bills the tenant does not pay.

This is so that they can collect their money from you, no matter what. Even when you go and sell the house, the bill needs to be paid. You can and will be brought to collections if you do not pay the outstanding balance plus late fees.

Pest Abatement

You make sure your property is in good condition when you give it over to your tenants. It is not unreasonable for you to want your tenants to be good tenants and keep the place clean and free of pests.

Since you did not bring in the pests, your tenants did.

Make sure you do not have to pay for any pest abatement in your properties. Have your tenants pay for the abatement of critters they bring in by putting the pest abatement clause in your lease.

Landscaping

In most areas of the country, it is normal to have the tenants take care of the yard. In others, you may need to hire someone to maintain it.

I prefer to have the tenant maintain the yard. Put it in the lease that the tenant is responsible for care taking of the yards.

Electricity and Other Utilities

NEVER, NEVER, NEVER include the variable rental property expenses like electricity included in the rent.

When the tenant does not pay for the electricity bill themselves, they will run up the bill. They won't care about your money. They believe they have already paid it in their rent.

So, make sure the tenant pays for the variable bills like electricity and gas.

Real Property Expense – Taxes

There are two things in life that are certain: Death and Taxes

Every year, you should appeal the taxes on your real estate rental properties. Taxes always seem to go up but this is one way you can get your taxes to come down.

I personally got back almost $1500 from my taxes with only 5 min of work.

Every year, I go through all my property tax statements and appeal the assessment values of each property that has a high property value. It is super easy to do and all the forms are usually online.

Go to your county Assessor, Tax Collector, or Treasurer to get their Property Value Appeal form. Fill it out and mail it off. I usually save thousands of dollars each year by lowering my taxes.

Check out my blog post where I explain how to do it.

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Some of the links in this article are affiliate links. I do get a commission for the referral at no cost to you. Also, I wouldn't recommend them if I didn't believe in the product. 🙂