Recent census data reveals that just under half of Charlotte properties are renter-occupied. That means that investors are profiting off of almost half of the real estate in the city. How are they keeping track of their finances in the process?
In theory, all rental property owners should be receiving their pay through owner disbursements. Owner disbursements refer to net income investors receive after covering other costs.
Why should you use owner disbursements and how can they help you optimize your property owner earnings? Read on to find out.
The Benefit of Owner Disbursements
Without owner disbursements, you'll have to deposit all rental earnings in your personal account. Any time you need to make a payment (i.e., for the mortgage or maintenance), that will also need to come out of of your personal account. Owner disbursements eliminate that issue by separating income from expenses.
This makes it a lot easier to assess your property owner earnings for personal reasons and tax reporting. In North Carolina, net rental income must be included when calculating your income taxes. Owner disbursements allow you to easily verify your net rental income each month.
How to Calculate Your Net Income
To calculate your net income, you need to calculate all expenses, and that includes building estimates. Make sure you account for:
- Fixed monthly costs (e.g., mortgage payments and property taxes)
- Estimated monthly costs (e.g., maintenance costs)
- Reserve funds for unexpected or large costs
Then, consider all possible sources of rental income, including:
- Monthly rent
- Intermittent fees (e.g., late fees)
- One-time fees (e.g., pet fees)
Keep in mind that in Charlotte, landlords can never collect security deposits as a source of income or keep them in a personal account.
To calculate your net income, simply subtract your fixed and estimated expenses from your total rental income. This will tell you how much to expect from your owner disbursements.
Best Practices for Rental Income Distribution
Always keep your gross rental income in a bank account that is separate from your personal accounts. Document all known expenses before approving and transferring owner disbursements.
Don't assume all unused funds at the end of the month are net income. You should always build a reserve fund for renovations or unexpected expenses.
Make sure to adjust your owner disbursements any time you redo your rental analysis or face an increase in fixed costs. The more frequently you assess your owner disbursements, the less likely it is that you'll miscalculate your earnings.
Wilkinson Property Management Offers Financial Strategies for Landlords
Are you ready to take a new approach to income optimization for real estate? If you're one of Charlotte's many real estate investors, it's time to get paid out in owner disbursements. Any other method of rental income distribution will create more movement and confusion than necessary.
Wilkinson Property Management has managed over 600 properties in the Charlotte area since 1999. Not only do we make life better for tenants, but we also use the latest technology and methods to make life easier for owners. Contact us to get your finances and portfolio in order.
