E-Renter News

The More Details, the Better

When you’re at the lease-signing stage with a new tenant, it’s your last chance to set your expectations, requirements, rules, regulations, dos and don’ts. If you expect a tenant to agree to a something, it must be in writing, or the likelihood of enforcement is nil.

The beginning of a new year is a great time to review your rental and lease agreements, policies, and tenant communication materials. Here are some areas your lease should cover that yours might not:

Vehicle policy: Clearly state how many vehicles your tenant is allowed to park on the property, and where they may park them. Obtain the license numbers of each. Require tenants to submit any new vehicle descriptions to you within a week of purchase. Indicate whether or not tenants are permitted to work on cars on the property, or to keep oversized or non-working vehicles on the property. Also state whether RVs, campers, trailers, etc. are allowed.

Phone numbers: A clause in the agreement that the tenant must furnish at least two telephone numbers, and update the landlord when the numbers change, is beneficial. Landlords must be able to reach tenants for safety reasons, when the rent doesn’t arrive on time, and to notify them of inspections, repair and maintenance work.

Landscape and lawn maintenance: It’s important to indicate whom is responsible for lawn care. Many landlords we know hire a service, to ensure that lawn maintenance is performed regularly and to their standards. Just as many require tenants to keep the grass cut and shrubs watered. Whichever way you prefer it, put it in writing so there is no confusion.

Visitors: Beware the visitor who becomes a squatter in your building! Clearly state in the lease agreement how long your tenants are allowed to have visitors stay. Seven days, fourteen days, and no more than fifteen out of sixty days are all examples we’ve seen in leases. Unfortunately, landlords sometimes have to police their tenants’ visitors to prevent an unscreened tenant situation. Tenants do not have the right to allow their friends and family to stay in your rental unit without your knowledge and, if you require it, your permission.

Owning and leasing property requires good organizational skills, a willingness to keep accurate records, and the ability to keep track of every penny of income and expense.

The IRS defines income and expense very clearly. Familiarity with the rules and regulations will help you organize your financial records and make sound decisions.

Rental income includes the following:

Advance Rent Paid: simply, any amount of money paid prior to the period it covers.

Cancellation Fees: if a tenant pays you money to cancel a lease, the funds are considered rental income.

Expenses Paid by Tenant: this category might include utility payments deducted from the rent payment or a repair bill paid by the tenant, either by mutual agreement or because of an emergency.

Services Provided by Tenant in Lieu of Rent: If your tenant installs a new dishwasher in exchange for a rent reduction, the amount must be reported as rental income. You can also deduct the same amount as an expense.

Retained Security Deposits: Any deposits you accept and intend to return at the end of a lease would not qualify as income. However, all deposits you keep during the year are included as rental income.

Any expense of renting your property can be deducted from your income. Rental expenses include the following:

Advertising Expense: including newspaper ads, signs, and paid website listings. The cost of producing and maintaining your rental business website also qualifies as an advertising expense.

Depreciation: Rental Property owners can begin to deduct depreciation when the property is ready to rent: after purchase and any needed rehab or repairs are completed.

Maintenance: Whether paid to a handyman, contractor, or maintenance firm, these expenses are deductible.

Repairs and Improvements: A long list of improvements are tax-deductible.

Insurance: Includes liability, theft, fire, flood, and any other standard property insurance.

Taxes and Interest: Landlords may deduct certain tax and interest payments.

Utilities: If you pay the utilities on your property/ies, these payments are deductible expenses.

Professional Fees: including tax prep, legal fees, consulting, and other professional services.

Travel Expenses: Expenses incurred while traveling to your rental properties to collect rent or manage the property are deductible, but travel related to improving the property is not. (Cost of improvements is recovered through depreciation.)

Note: The information presented here is not intended to be used as tax advice. Consult your tax professional for details on IRS regulations. It is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.