Building a portfolio of income properties is a goal of many investors. With the housing market in crisis, there are many opportunities to acquire a suitable property to rent or resell. To be successful in building a profitable portfolio, properties must be purchased at a price that allows rental and lease income to exceed the property’s operating expenses.
Many new real estate investors do not include all expenses related to running the property. They may not allow a fund to replace a roof in 12 to 15 years. They may not allow insurance policies to protect against tenant default. Before purchasing an income property as an investment, it is helpful to find software or published materials that will help you get a realistic picture of your expenses.
When you’re just learning how to successfully manage property, there can be many ways you incur hidden expenses. These hidden fees can cost you money. One of the ways to start keeping track of such items is to take a close look at the books for prior fiscal periods. Each type of expense must be identified and categorized. You can check if the item or service is provided by a specific provider and, if so, if there is a price reduction. Often, being able to tell a supplier that you have spent X-dollars on a particular item or service in the past year and would like a volume discount is enough to save costs.
Another way to save money is to reward high-paying tenants with some type of bonus. You can track a particular tenant’s payment history and provide a refund or remove a scheduled rent increase for prompt payment. Receiving less money may seem counterproductive, but many new homeowners don’t realize there is a cost associated with renters staying only a short time and then leaving.
Good tracking makes tax preparation much less complicated. Instead of facing a stack of receipts and cash register tapes at the end of the fiscal year, you can account for items daily and file them as needed. Compiling and reporting business income and expenses becomes a simple matter of reading the reports.
Using property management software can make all the tracking and reporting for your business a lot less hassle. A small investment in software can be more than repaid through price savings and a better managed installation.
