Every month, a tenant makes a rent payment to their landlord. While the general consensus is that the landlord pockets the money each month, a landlord has many more expenses than most people realize. There are general things that most landlords pay for like property maintenance, repairs and taxes and there are other items that may be more specific to a certain landlord, such as a property management fees or security costs. Here is what your landlord may be using your monthly rent for.
Does the Law Have Specific Requirements for What a Landlord Must Pay For?
In general, landlord-tenant law does not have specific requirements for how a landlord must use the rent he or she receives from a tenant. However, the landlord does have certain responsibilities under landlord-tenant. These include financial obligations and maintenance obligations such as:
- Managing the Security Deposit
- Disclosing the Owner of the Property
- Delivering Possession of the Rental Unit on Move-In Day
- Property Maintenance
- Adhering to Building Codes
- Maintaining Common Areas
- Making Necessary Repairs
- Keeping Vital Services Functioning
- Providing Trash Receptacles
- Supplying Running Water
- Liable for Following Landlord Tenant Law and Lease Agreement
Therefore, while it is not directly required by law, a landlord may indirectly have to use the rent that he or she collects from a tenant to pay for all of the financial obligations he or she has to the rental property and to maintain the rental property and make sure it conforms to habitability standards.
Common Ways a Landlord Uses a Rent Payment
A large percentage of the money that a landlord collects from a rent payment will be used for expenses directly related to the rental property. Whatever money is left over will then be used for a landlord’s personal expenses. Any money left over after that will be considered profit. The following are some of the most common expenses related to the rental property.
- Mortgage- If a landlord does not own the rental property outright, he or she is responsible for making a mortgage payment each month. This payment goes toward paying the principal on the loan and the interest.
- Property Taxes- Another large expense for most landlords are the taxes on the property. The property taxes will vary greatly based on the tax rate of the area you live in and on the size of the rental property; the larger the property, the higher the taxes. Property taxes will be between several thousand dollars and tens of thousands of dollars each year.
- Insurance Policies- A landlord has to have insurance on the property to protect the property in the event of fire damage, natural disasters, liability claims or other accidents. This premium must be paid on time in order to continue coverage.
- Utilities- Some tenants are responsible for paying all of their own utilities, while other tenants have their utilities paid by the landlord. The lease agreement will clearly define who is responsible for paying utilities such as gas, electricity, and water.
- If the tenant is responsible, the utility bills will be in his or her name. If the landlord is responsible the utility bills will be in his or her name. The landlord will then use the rent collected to pay the utility companies directly.
- Water Bills- Some older buildings do not have separate water meters for each apartment. In these cases, the water bill would be in the landlord’s name and he or she would be responsible for directly paying the water company. The landlord could build this cost into the amount the tenant pays in monthly rent.
Another continuous expense for a landlord are all of the costs to maintain the rental property. Routine maintenance needs to be performed to keep the property up to health and safety standards.
- Normal Wear and Tear- Items will wear down over time and will need to be repaired or replaced.
- Garbage Pickup- In certain towns, weekly garbage pickup is not included in your taxes. In these situations, the property owner is responsible for contacting a private garbage company and arranging for weekly garbage pickup.
- Under landlord-tenant law, a landlord is responsible for maintaining the rental property according to certain health and safety standards. This includes providing proper trash bins for any waste. A landlord may factor the cost of waste removal into a tenant’s monthly rent or may pay it separately.
- Pest Control- A landlord is responsible for keeping the rental property free from pest infestations unless it is caused by a tenant’s neglect or direct action. The landlord will have to pay the exterminator when necessary.
- Lawn Care Costs- The grass at a rental property needs to be cut. Expenses include a lawn mower, gasoline, fertilizer, weed killer or hiring a lawn care company to take care of it.
- Snow Removal- Removing snow is a landlord’s job. Expenses include shovels, salt and hiring someone to shovel if necessary.
In addition to routine maintenance, a landlord will have to pay for necessary repairs, unless they have been caused by a tenant’s deliberate action or neglect. In these cases, the tenant is responsible for paying for the repair. The landlord will have to pay any outside contractors he or she hires to complete the repair. These repairs can include:
- Appliance Repair
- Plumbing Leaks
- Roof Leaks
- Problems With Heating or Cooling
- Frozen Pipes
Property Management Fees
If a landlord has hired a property manager, the landlord must pay the management fee in order to continue service. The property management contract determines how this fee is paid. The manager may receive a percentage of the rent collected or may receive a flat fee paid after rent has been collected.
A landlord has expenses related to keeping the building secure. This can include exterior lights, deadbolts for doors, properly trimming exterior shrubs, monthly fee for an alarm system or, for larger buildings, paying an actual security guard on premises.
There are costs associated with fixing up a rental unit after the current tenant moves out. The apartment needs to be cleaned, repainted and repaired. There may also be costs associated with finding a new tenant including: hiring a Realtor, hiring a photographer to take pictures and marketing costs to advertise the rental.
Health Hazard Remediation
Unexpected expenses may come up at the property regarding health concerns. Lead paint hazards, toxic mold or asbestos may be found which needs to be remediated according to EPA guidelines, which can cost several thousand dollars.
Filing taxes for a rental property can be confusing. Landlords often have to hire accountants with expertise in real estate investing. Depending on the level of assistance, this could be a one-time fee or a recurring monthly fee.
If a landlord has had to hire an attorney for legal advice or to represent them in court, the landlord will have to pay the attorney’s fee. A tenant may be responsible for paying this fee if he or she loses the case in court.