Investment property owners have a myriad of responsibilities to attend to on a daily basis. In the chaos of managing their properties, it is not uncommon for landlords to overlook certain facets of their finances. Although they may appear to be minor, these mistakes can lead to serious financial losses or missed gains. While common, these oversights are not inevitable. By making yourself aware of possible oversights, you can avoid future blunders and improve your financial outcomes. Below are four of the most common financial mistakes made by landlords and tips to prevent them.
1. Not Maximizing ROI During Renovations
Not all renovations carry the same weight. Some unit upgrades are costly and generate very little return, while others seem small but have a large impact. Many property owners don’t realize this and as a result, miss out on potential profits.
Instead of investing money into renovations with small returns, be intentional with your spending and prioritize updates with a high return on investment. For instance, some of the upgrades with the highest ROI include new flooring, better interior lighting, and updated appliances. These changes can lead to large rent increases without having to break the bank.
2. Filing Taxes Incorrectly
Whether you’re a first-time investment property owner or a seasoned pro, filing taxes can be a confusing and complex process. If done incorrectly, you can miss out on possible deductions or even face legal trouble. Sadly, many property owners fall victim to poor tax filing and are forced to face the consequences. To avoid this, it is important to do your research and consult with a tax advisor.
Possible deductions should be a key part of the discussion. Some costs are considered to be immediate deductions, while others may depend on separate factors. For instance, maintenance costs and property upgrades qualify as tax deductions, but only when they meet certain time constraints. By scheduling a tax consultation, you can ensure that you’re not missing out on any potential benefits.
3. Using a Poor Utility Billing Process
Many landlords perceive utility billing as a routine process that isn’t profit-generating. However, this notion is misguided. In reality, optimizing your utility billing process can be a valuable opportunity for financial savings.
One way to do this is through the Ratio Utility Billing System (RUBS), which is a method for calculating utility costs for individual housing units. This billing process grants you protection against rising utility costs and turns a previous operating expense into operating income. RUBS also acts as a better and less costly alternative to other billing systems because of its low initial cost.
4. Not Having Proper Insurance
When it comes to property ownership, investing in proper landlord insurance is crucial. The wrong insurance plan can leave you financially ruined in the event of lawsuits, natural disasters, or economic downturns. Yet, a strong insurance plan can alleviate such burdens and minimize the damage to you and your business. Sadly, many landlords make a mistake and choose the wrong plan.
When choosing an insurance plan, there are four critical areas of coverage to look for: property damage, liability, tenant discrimination, and rental default coverage. By selecting a plan that covers all four areas, you will be protected in the event of virtually any problem. These coverage areas encompass everything from vandalism and lost rental income to tenant injuries or discrimination claims.
As an investment property owner, it’s important to optimize your financial outcomes. By understanding the common mistakes made by other landlords, you can better avoid financial issues yourself. If you want to learn more tips on how to improve your finances and save money, check out 5 Ways to Maximize Your Rental Property Cash Flow.