7 Financial Moves to Make Before Q2 Sneaks Up on You

In This Article

This article is presented by Avail.

Did you know that if you’re a landlord, February is life’s gift to you in terms of getting your business finances in order? 

Understandably, dealing with the intricacies of real estate tax prep and rental contracts in January is a superhuman ask. But February is your chance to really get on top of everything for the year ahead before ax prep starts, leases are mid-cycle, and peak turnover season (spring/summer) begins. 

These are the seven operational areas you should be zooming in on right now before Q2 begins. 

1. Audit Your True Cash Flow (Not Just Rent In vs. Mortgage Out)

Most landlords overestimate their rentals’ performance out of pure optimism. However, basing your cash flow numbers on a simple “rent in versus mortgage out” equation is like relying on a lab experiment performed under perfect conditions to gauge a real-life situation. 

In reality, every landlord has to factor multiple factors into their cash flow figure, like insurance costs and property taxes. Where many newbie investors go wrong is failing to factor in the more unpredictable, irregular expenses, such as maintenance, capital expenditures, potential vacancies, and other factors that can increase costs. According to a recent survey conducted by our partner, Avail.co, 74.4% of landlords saw property ownership costs rise this year, so if you’re in that midst, you’re not alone.

Another important point to consider is that no matter how great a tenant is, there is always a chance they will move out and leave a unit that requires costly repairs. For that reason, it’s always recommended to plan for the worst by building a rainy-day fund: You don’t know when you’ll need it, but at some point, you definitely will. Factoring in as many potential and ongoing expenses into your cash flow over time will mean you’re much better prepared for a financial challenge when it does come. 

2. Clean Up Tenant Payment Behavior

Understanding the psychology of tenant behavior is more art than science, but you must work out a system to deal with most situations you’ll face regarding late payments. 

Most late payment patterns can be prevented with automated rent reminders and late rent notices that send out at the appropriate time. Tenants really dislike being chased for payments and will avoid paying late again if they know you’re not going to let them off the hook. But what if you don’t remember when payments are due for different properties, since they all have different due dates? You likely will miss the crucial time window for enforcing prompt payments. 

So, now is the time to streamline and standardize all the rent payment processes. Just make all tenants pay on the first of the month, for example. And if they already have a history of paying late? You can have a “late rent notice” ready to send via email, including the grace periods they’re entitled to under local law and what happens if they don’t pay. Landlord-focused platforms like Avail can help you with all of that through automated rent collection, payment reminders, and customizable late fees that handle the follow-up for you.

Of course, as a landlord, you have to use your best judgment, especially when dealing with long-standing tenants. Someone who has always paid on time for years and slipped up once because of a family emergency is obviously not the same as someone who’s just moved in and is already late on their second month’s payment.  

3. Get Your Books “CPA-Ready” Now

If you’re a real estate investor just waiting until March to get your books in order for tax season, you are, unfortunately, a whole two months late. 

Why? Because most rental property expenses need to be paid by Dec. 31 during the year you’re filing for. Otherwise, the expense counts for the current year, and you won’t be able to write it off until you file your return in 2027. That can be a nasty surprise if you just paid a contractor for a rental reno in January and were hoping to write it off in March. 

Many landlords also routinely miss write-offs they’re entitled to, especially when they do maintenance on their rentals. For example, many are unaware of “partial asset disposition,” in which you take your rental and segregate expenses based on what was disposed of and what was added. 

Say you replaced the roof. Many investors know that the cost of the new roof can be written off through depreciation, but not that the cost of the old one they are replacing can also be written off as a partial asset disposition. Of course, you can only do that if the property was “in service” before you made the improvement.   

Another interesting write-off helpful to those who have already fully cashed in their depreciation is that if you convert your long-term rental into a short-term rental, you could then make the improvement and qualify for the QIP (Qualified Improvement Property) write-off (you don’t qualify if yours is a long-term rental).

Obviously, making all these changes and documenting them takes time; it’s not something you can suddenly put in place in March. You always need to plan well ahead for any deductions on your property; in most cases, you’ll need to have made any restructuring moves and paid the qualifying expenses before the end of the year you’re about to file for. Consider centralizing all rental expenses in one place, using platforms like Avail to track income and expenses.

You might also like

4. Do a Lease Health Check

The more leases you have to manage, the more administrative and market research you have to do. Do as much of that work in advance as possible. If you’ve made updates to your standard template, you can clone it via a platform like Avail that can be adjusted per property and save you some work.

Do your leases comply with the latest local law updates? You should always be aware of any new requirements, like mandatory checks and improvements required by your city/county. These do change, and it is your responsibility to keep up to date with any new requirements. Again, Avail for the win with state-specific, lawyer-reviewed leases that are free to create, saving you hours of research.

5. Perform Maintenance Triage Before Spring Breaks Everything

Winter can feel like the most challenging time for property upkeep, but spring is actually far riskier. Snowmelt (basement flooding!), temperature fluctuations (surprise pipe freeze!), and, eventually, the new season’s storms can wreak havoc on your rental. While you can’t anticipate every adverse weather event, you can do a lot to ensure the rental will withstand most of them.

As a bare minimum, schedule a routine HVAC check and assess (or hire a professional to assess) any plumbing, drainage, and exterior issues with the property. Do this now and protect your profit margin for the year ahead. Leave it until March or later, and you may already be too late.  

6. Do a Vacancy Risk Scan

Another big known unknown every landlord faces is vacancy risk. Even tenants who seem low-risk for nonrenewal can sometimes surprise you by deciding to move midyear, or even worse, before the summer moving rush begins, which greatly increases the risk of the property standing empty. 

What can you do about this? First, if you have a long-standing, positive relationship with your tenants, it doesn’t hurt to ask about their plans. They might actually tell you, putting your mind at rest. In many cases, tenants themselves genuinely don’t know the exact time frame of their plans, but they could give you a valuable indicator of what’s to come, especially if they mention wanting to buy soon. The good news is that, according to the latest Avail.co survey, 36.1% of landlords report that their tenants are staying in their properties longer than in previous years.

Of course, tenants may not want to share their plans with you, especially if they’re navigating a difficult experience like a job loss or a potential move to be nearer a sick relative.

In these cases, it’s worth paying attention to less obvious signs that the tenant might be considering moving out. They might be spending increasing amounts of time away from the property (mail piling up is a good indicator of this), taking less care of the yard, or suddenly getting late with rent payments, even though they always used to be on time. Behavior changes often signal that a bigger change is coming. 

Finally, many tenants decide to move after a rent raise. Be sure to communicate the increase and be very transparent about how it aligns with current market-rate rents; tenants who are satisfied that a rent increase is reasonable are less likely to leave than those who feel it’s been sprung on them. 

And if you’re getting the sense that a tenant might not renew their lease, be proactive rather than reactive. Of course, you can’t start advertising a property before a tenant has communicated that they’re leaving, but you can make informal contact with people in your pool of current tenants. For example, you might know a couple who could be interested in a larger unit—why not have a conversation about whether they’d be interested? Sometimes, a tenant reshuffle is easier to navigate than looking for new tenants. And if you end up having to look for new renters, Avail can post your property to 24 top rental sites for free, speeding up the process.

7. Perform a System Stress Test

The ultimate stress test for an investor might not be only asking yourself: “Am I in a good spot with my rentals right now?” but asking, “Will I be okay if the HVAC in one of my units breaks, if my tenant leaves, or if I add a new unit to my portfolio soon?” Would you be able to cope with the additional expenses, administrative work, and responsibilities, or would your systems break down? 

The solution is always to streamline and standardize your processes as much as you can. 

Many landlords use February to centralize rent tracking, maintenance records, and lease documents in one place so they don’t have to scramble later. Tools like Avail can make that process much easier and more secure. Sign up for free today to check it out and start getting ahead of the peak season!