So you’ve purchased a property using the criteria described in our previous post and you’re preparing for a PCS. The time comes to list your property and you don’t know how to prepare it for renters, what to do to insure yourself, and what items to keep track of for your records. Your house is clean, painted, and safe for a tenant. What should you do from there? The three factors below should assist you with your transition to renting.
The first thing to do is hire a property manager to advertise your rental, screen tenants, and assist with the day to day operations of the rental property. A property manager ensures that your listing is appealing to potential tenants and screens potential tenants for a number of factors. A good property manager checks credit score, criminal history, and income to ensure that you won’t end up with an eviction or a law suit. He or she will also take care of the day to day operations of the property to include handling tenant complaints, maintenance, and other issues.
Property mangers do come with a cost, however. Typical fees vary from 40-50% of the first month’s rent for placing a tenant and 9-10% of monthly rent thereafter. Having a property manager, however, is worth it especially if you are PCSing to a distant location and can’t directly handle the day to day operations of a property.
Insurance and home warranty programs
Ever hear of a friend getting into a lawsuit with a tenant? Generally such lawsuits are costly affairs so you should strongly consider getting some form of insurance to protect yourself in the event of a lawsuit. Additional legal factors such as including a “mold clause” in the rental agreement ensure that you are covered in the event of a mold related issue with the home.
While home insurance on a rental property does cover most issues, it may also be worthwhile to consider an umbrella policy if you have multiple properties or a high net worth. Umbrella policies provide additional insurance in the event of a lawsuit. Depending on your net worth, such a policy may be a worthwhile consideration to ensure that your assets are protected. These policies generally cover legal expenses and losses in the event that you are sued.
Home warranty programs may also be worth considering but some property managers charge fees for dealing with them as they can often be a challenge. If you have a number of expensive appliances in the home, a home warranty program can save you money in the event that one malfunctions or breaks.
The BOTTOM LINE UP FRONT: Ensure you are protected with some form of insurance prior to renting your property. Failing to do so could turn out costly!
Keep your receipts! Tax considerations for a rental property
Always keep your receipts for expenses related to your rental property as they will be very useful come tax time. Please talk to an accounting professional about what you can write off on your schedule E (your taxes). Generally, the list includes:
- Property management expenses
- Repairs that don’t add to the value of the home (i.e. basic maintenance)
- insurance (to include your umbrella policy)
- mortgage interest
- utility expenses for the duration that the property is not rented
- local taxes
- depreciation (based on the property value, you schedule this cost)
- cleaning costs
- HOA dues
- travel expenses: one visit per year (you can write off a flight from California to Georgia to visit a property for example)
The most you can write off annually from all of your property related “losses” is $25,000, but you can carry losses of greater than $25,000 over to the next year. Be sure to hold on to receipts as they add up! $
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