With recent changes to the Illinois tax code to combat a lack of state funds, Chicago and Cook County have earned the unfortunate honor of being in the top ten list of least tax-friendly cities in America. In fact, a recent Kiplinger report named Illinois as the least tax-friendly state in the country. The award was earned by Illinois because of a number of increases in a variety of state taxes, with property taxes playing a big role. Chicago property taxes are no exception.
Homeowners across Illinois can expect to pay an average of $2,408 in taxes per $100,000 of assessed home value in 2019, with Chicago property taxes averaging $3,538 annually. Naturally, this is not good news for landlords. Property taxes are a necessary evil, but with rates as high as they are in Cook County, it can eat up a serious chunk of your rental income. So, with climbing Chicago property taxes and some of the worst personal taxes in the country, we thought it would be a good time to look at how landlords can bring down their tax bill and save costs in other areas.
Record Everything!
No, we don’t mean your morning shower karaoke. We mean your expenses. Owning and managing a rental property is an expensive business. From regular maintenance to emergency repairs, the bills add up. Unfortunately, you can’t apply deductions to your property tax bill, but you can deduct the expenses of owning and managing a rental property from your business or personal tax bill. Every bit of work that you do on the property that isn’t a major improvement can be deducted from your income taxes.
“The most important records to hold onto are any that pertain to spending on maintenance and repair of the property. “
Obviously, to be able to take full advantage of deductions you need to ensure that you keep records of everything. The most important records to hold onto are any that pertain to spending on maintenance and repair of the property. Good property management apps like ChoreRelief do that for you so, at the end of the year, you’re not hunting through documents and emails and trying to remember who you paid for what.
However, there are other less obvious expenses involved in managing a rental property that you can deduct as well. The good news for Chicago landlords is that property tax is one of them. The interest on your mortgage can also be deducted, along with travel expenses to and from the property, insurance premiums, and any utilities that you pay. It may sound like a lot to keep track of, but they can all add up to some pretty huge reductions in your tax bill.
Cut Costs Elsewhere
What do you do when you have an unavoidable expense like Chicago property taxes that can’t be reduced? You find other ways to trim your expenses and keep your cashflow up. There’s nothing you can do about some costs. They are what they are. However, there are lots of variable costs involved in managing a rental property with a little more wiggle room. Whether you’re staring down the barrel of a big property tax bill or not, taking some time to evaluate your expenses and look for ways to cut costs on a regular basis is a good idea.
“Just because you’ve used the same contractor for years, it doesn’t mean that you can’t get a better deal.”
The first port of call is always going to be maintenance and repairs. There are lots of ways to lower your property maintenance costs, and you should be exploring every one of them. Just because you’ve used the same contractor for years, it doesn’t mean that you can’t get a better deal elsewhere. Or perhaps you’ve had a string of unruly tenants that put added wear and tear on the property? Then it might be time to evaluate how you are finding and vetting your tenants.
If you manage multiple properties, buying in bulk is also a great strategy to lower costs. For new properties in your portfolio, fit them with the same appliances and use the same paint colors. That way, you can stock up on commonly replaced items and paint in bulk, and use them on all of your properties. Also, consider property locations before investing in new rental properties. If you are regularly visiting the properties and doing work on them yourself, buying properties all over town will eat up your time and make managing them more expensive and complicated.
Diversify Your Cashflow
It may seem obvious, but the best way to combat those expensive Chicago property taxes is to increase your revenue stream from the property. Exploring every avenue for generating income from your rental properties is one of the easiest ways to offset rising costs. You would be surprised how many potential income sources you may be ignoring when you take a closer look. Naturally, the first port of call should be rent increases, but there are a host of other options too.
“You would be surprised how many potential income sources you may be ignoring…”
Many landlords are afraid that rent hikes will scare off good tenants. Tenants leaving means turnover costs and lost revenue while the property sits vacant. Avoiding that is a good instinct. You definitely don’t want to price your property out of the market. However, if you haven’t had a rent increase in the past few years, you may be leaving money on the table. Good tenants will understand that reasonable annual rent increases are part of the deal. Take a look at properties in your area and see where you fall. If you are charging below-average rent, it may be time to up the price a little.
If your rent is on the money, however, then there are other income sources you may not be thinking about. Charging for parking is commonplace in most apartment buildings these days. If you aren’t, then you might be losing out on revenue that your tenants are expecting to pay. You may also have unused space in your rental properties that could be generating income for you. If you have a garage or basement that is not being utilized, you could be renting that out as storage space. Lastly, if you have a larger building in an urban area, consider opening up the building for advertising. One billboard can generate anywhere from a few hundred dollars each month all the way up to over ten thousand, depending on the location.
Summary
There’s no getting around it. Being a property owner and landlord in Illinois right now is not cheap. Chicago property taxes are steep and they seem to only be getting steeper. However, that should put you off investing in rental properties or make your existing properties unprofitable. There are plenty of ways to maximize your cashflow and keep your balance in the black. Just take the time to evaluate your finances and look for other revenue streams. Implementing a strategy and leveraging the right technology can save you time and money.
The post Landlord Tips for Surviving Rising Chicago Property Taxes appeared first on ChoreRelief.
source https://chorerelief.com/landlord-tips-for-surviving-rising-chicago-property-taxes/
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