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Rental fees aren't solely for generating profit. In many cases, they also cover expenses you may not expect or enforce rules that tenants may break. Knowing what these charges are and what they can be used for is crucial to running smooth operations.
Listed below are the charges or fees you may need to include in your lease agreement, as well as the state and local laws that may concern rental fees that landlords and tenants pay.
Key Highlights:
- Fees collected from tenants often cover essential operational costs and protect landlords from financial risks, not just to generate income.
- Landlords must plan for consistent outflows to keep their rentals profitable and compliant. These expenses include down payments, mortgages, and property management fees. Marketing, insurance, taxes, and turnover costs also need to be accounted for.
- Typical tenant charges include rental application fees, security deposits, first month’s rent, late fees, and utility or amenity costs, which should be clearly stated in the lease for transparency.
- Some fees, like application charges and security deposits, are governed by state or city laws that determine whether they must be refunded or capped, making legal awareness crucial for both landlords and tenants.
- Both parties benefit when all fees, from deposits to termination penalties, are outlined in the lease agreement, supported by itemized records to ensure fairness and compliance.
Landlord Expenses
Down Payments and Mortgage Fees
One of the biggest costs you need to pay will be the down payment, since most sellers will require about 10-25% of the purchase price for the down payment. You will then have to pay monthly for the mortgage, which is typically paid for 15 to 30 years, depending on the arrangement you made. As for the amount, the interest rate will also be a contributing factor.
Administrative Fee
This applies when you hire a property management company to handle the day-to-day operations of your property. Their responsibilities can include collecting monthly rent, conducting maintenance, handling evictions, and other services covered by your agreement. The administrative costs will also depend on the fee structure of a company, so do your research and learn whether they have hidden fees on top of fixed costs.
Marketing and Tenant Screening
To find potential tenants for your rental property, you need to market it strategically. While there are cost-effective ways to increase visibility, you may need to spend more money when the rental market is competitive. Once you do find applicants, you need to conduct background checks to ensure that they are reliable tenants. Property owners can hire screening services for credit checks, previous evictions, and other useful criteria in the screening process, but you have to consider the additional costs.
Insurance Premiums
Insurance is a very important component in owning a rental property, as it protects you from unexpected costs. You can mitigate tenant-caused damages by being thorough when you screen tenants, but many landlords can tell you that there are several ways you can encounter unexpected costs. Natural disasters, for instance, cannot be helped.
Taxes
You need to account for taxes on your rental profits after expenses, along with other eligible deductions you can make. Discovering which tax benefits you can take advantage of will help you save money, and if you're unsure, you can always hire a tax professional or property manager to crunch the numbers.
Turnover Costs
When a tenant decides to end their lease and leave, there are turnover costs to pay, such as cleaning services, paint touch-ups, marketing costs, and other expenses you need to spruce the place back up.
Tenant Expenses
Rental Application Fees
Payments begin for the tenant the moment they apply for a rental unit. The average rental application fee in Austin is $40 to $75 per applicant. In some states or cities, rental application fees are refundable when the tenant is not picked, so be sure to check whether you should return them or not. If you're not familiar with rental application fee laws, always consult a legal expert.
Security Deposit
Once the rental process is done, you need to charge a security deposit to protect your rental property from unexpected costs. You can deduct from the deposit to cover damages beyond wear and tear. The exact fee amount for the security deposit should be worth one month's rent or two, depending on whether your rental property is furnished or not.
First Month's Rent
Many landlords require the first month's rent up front, while some ask for two. While there is no maximum amount in Austin, Texas, you still need to charge reasonably. Stay up to date with local guidelines to ensure legal compliance, and charge equally to avoid potentially violating the Fair Housing Act.
Late Fees
It's important to enforce your lease rules for unpaid rent to prevent it from happening again, such as issuing late fees. This should clearly be stated in the lease agreement, along with other essential information, like grace periods and consequences for failure to pay rent. In most cases, continuous late or non-payments lead to eviction.
Additional Fees
Outline the additional fees your tenant has to pay during their tenancy, such as utility fees, parking fees, amenity fees, and other charges. While this can be discussed during the rental application, it benefits the landlord to include it in a legally-binding lease where the actual costs are indicated. It protects all parties involved and can be used as a reference during a potential dispute.
Lease Termination Fee
This particular fee is charged when a tenant breaks the lease earlier than agreed upon or without proper notice. It compensates the property owner for the abrupt lease termination, and the fee covers costs for tenant turnover.
Rental Fees FAQs: What Landlords and Tenants Need To Know
Are rental application fees refundable?
- In most states, like Texas, they are non-refundable fees. However, if you have rental properties in other locations, it's best to check state laws regarding application fees. In California, landlords or property management companies are required to return the full rental application fee.
What can I deduct from the security deposit?
- You can use the security deposit to pay for repairs for tenant-caused damages that are beyond normal wear and tear. However, you need to provide a complete list of all the charges you made, along with what you used them for. The itemized list must be provided within 30 days after they move out.
How much is the average rental application fee?
- It can be around $40 to $75, depending on the kind of rental you're applying for. Before you apply to multiple options, keep in mind that rental application fees are non-refundable.
What's the best way to collect fees from tenants?
- There's no best way since different tenants prefer different payment methods. Whether it's for rent collection or other fees, you should have more than one payment channel for convenience.
Which rental fees are non-refundable?
- It can depend on various cities and states. For example, California requires landlords to return application fees when a renter is not picked. Security deposits and pet deposits need to be returned when unused, along with rent payments made in advance, but other fees don't need to be refunded.
Make Sure Transactions Are Smooth
Both landlords and tenants want the same thing: seamless payments between the parties involved. Whether it's regular payments or one-time fees, ensuring that they come through keeps the business running.
Companies like Austin Property Management handle various aspects of a rental business, including payments and accounting. Do you want worry-free property ownership? You can leave the tedious tasks to us and focus on finding other profitable ventures.
Contact us, and learn what we can do for you.
