By Mark Ferguson
Source: Invest Four More
Rental properties are a great investment, but they take work to manage, especially if you do not use a property manager. I own 14 rental properties and I managed my rentals myself up until the start of 2014. My rental properties are all single family properties and easier to manage than multifamily rentals, but it still takes time. Not only does it take time, but you have to pay attention to details and be firm with tenants to successfully manage rental properties yourself. You can’t be easy on your tenants and you can’t ignore problems, because that is when rental properties can change from a great investment to a very poor investment.
What is involved with managing rental properties?
There are many tasks associated with managing a rental property. However, most tasks come when first renting a property; once a home is rented there is much less work involved. Here is a break down of the basics of managing a rental property.
- Determine what to repair before a property is rented. I want to control what is repaired whether I manage a rental property or what a property manager does. A property manager may help you with repairs before you rent a property, but they also may only help with maintenance and repairs after a home is rented. Even before you buy a rental property you should have a good idea of what is going to be repaired and how much it is going to cost. Out of state rental property owners may have to depend on someone else to manage the rental property repair process.
- Determine what to rent a home for. I also like to have control of this whether I am managing a house or using a property manager. A property manager wants to get houses rented fast because they collect money based off the rent. They may not try to get top dollar, although some might. An agent on my team recently sold a home to an investor and that investor used a property manager. We had told the investor the home would rent for $1,500, before they bought it. The property manage they hired said they would rent it for $1,200! We urged the investor to rent it for more and they ended up asking for $1,600 a month. They rented it at $1,600 in two days and they were very happy they did not blindly take that property manager’s advice. Here is a great article on how to determine market rent.
- Rent a home. Renting a home is the hardest part of management; at least it should be. If you take time to screen tenants and pick the best tenants it will make you more money and save many future headaches. You have to have to advertise the property, show the home, check references, check credit, create a lease and collect money. Don’t pick a tenant because they are the only ones that will pay what you are asking. Don’t pick the first tenant that wants the house because you are tired of showing it. Pick the best tenant and don’t convince yourself a tenant you have doubts about will work out so you can start collecting rent. Here is a much more detailed article on how to rent a house. Property managers should have strict guidelines for who they rent homes too.
- Collect rent. When you rent a home you have to make sure your tenants pay on time and charge late fees if they don’t. If you let late rent slide, the tenants will think it is okay and they will keep paying late. They will get later and later with rent if there aren’t any consequences and may stop paying completely. You have to be strict no matter who is late and what their story is. If tenants get too far behind don’t be afraid to start the eviction process. Starting the eviction process usually gets your tenants attention and they start paying rent. A property manager will collect rent and should have no problem charging late fees.
- Evict a tenant. It is never fun to evict anyone and I try to avoid it, because an eviction is just asking for your tenant to trash a house. I have yet to go through a full eviction, but I have had mutually agreed upon move outs. If I can have a tenant move out on good terms, they are more likely to take care of the home and possibly pay me what is owed. I would rather lose a tenant who is not paying rent and rent the home to a tenant that will pay me than a tenant who is constantly behind. A property manager will handle rent collections and evictions.
- Check on your houses. Just because you have a tenant who always pays on time and never causes a problem does not mean they are taking care of your property. I always write in the lease that I have the right to inspect the property with proper notice. I use this time to make sure the home is well maintained and I can change furnace filters, check smoke detectors and make sure no other repairs are needed. Some of the biggest problems come from landlords who rent a house and then never check it. The same tenant is in the property for years and they absolutely destroy a house and the landlord never knows. It is possible to destroy a house quickly, but usually the worst damage occurs over years of time. Some renters who always pay on time are doing so, because they don’t want landlord to come see the house. They may be trashing the property or doing something illegal like selling or making drugs. Property managers should check on your houses, but you never know if they are.