When people move to a new home, they may choose to rent out their previous home. Renting provides additional income to the family as it settles into its new house. Landlords who rent houses to tenants incur additional expenses to maintain the living conditions of that home. These expenses fall into two categories, direct or indirect.
Direct expenses include costs directly related to the upkeep of the property or the rental process. The upkeep of the property includes all the costs necessary to keep the house in a livable condition. This also includes any costs incurred to maintain the value of the home that keep the house in a higher level of living commensurate with the rent being charged. Direct expenses also include costs incurred to facilitate the rental process.
Direct expenses include property upkeep and rental expenses. Property upkeep refers to expenses necessary to maintain the value of the home. These include repairs, lawn maintenance or carpet-cleaning for new tenants. Rental expenses refer to costs necessary to locate tenants and facilitate an agreement. These expenses include advertising costs in local newspapers, background checks on potential tenants or legal fees to draft agreements.
Indirect expenses include costs related to the rental of the property, but not directly tied to the property or the rental process. The landlord incurs these expenses as a result of being in business, but they hold no connection to the specific property. These expenses allow the landlord to continue renting the property and to analyze the decision to rent.
Examples of indirect expenses include tax preparation fees or bookkeeping expenses. These expenses occur as a result of renting the property. Bookkeeping expenses include the cost of maintaining financial records throughout the year. These records detail the direct expenses incurred from renting out the property along with the revenues earned and calculate a net income for the landlord. The landlord uses the financial data generated through the bookkeeping system to determine the financial gain from renting the property. Tax preparation fees refer to the expenses incurred to file income tax returns at the end of the year.