Summary: In this article, discover 7 property management tips for landlords that will save you time and headaches with your investment property. This article is based on a Real Wealth Network webinar where our expert explains the in’s and out’s of investment property management and how you can be a successful landlord.
Property management is different than simply owning real estate investments. In fact, when you own a property and plan to rent it out, you are entering into an entirely different realm of investing. If you choose to “go it alone,” then it will be your responsibility to interact with tenants and potential tenants.
Ultimately, you decide who will lease your property, when and how you will collect rent, how you will market your rental property, as well as resolving any maintenance issues and repairs. With all of these factors in mind, you can greatly simplify your life by working with a trusted property management company and following these property management tips for landlords.
Tip #1: Understand the 4 Components of Real Estate Property Management for Landlords
The role of a property manager requires you to wear several hats. In fact, rental property management has four key components: 1) tenant placement, 2) lease terms, 3) maintenance, and 4) lease renewal.
To succeed as a property manger, you must meet the needs of each of these categories. If you’re at all hesitant about fulfilling these duties, you may want to consider hiring a real estate property management company. Next, let’s dive into the tasks that these four categories entail.
1 – Tenant Placement
Throughout the lifetime of your rental property, it’s likely you’ll have to find new tenants more than once. While finding quality tenants is one of the keys to a successful rental property, there are several factors and steps that must first be carefully considered.
- List the rental. — As simple as this sounds, far too often landlords simply put a sign out front and expect to find “the perfect tenants.” Instead, actively market your rental to the audience you’d like to rent to. Make sure that you give yourself enough time to find new tenants by listing your rental before the previous tenant’s lease has expired.
- Show your property. — In order to find the right tenants, you will need to show your property to interested parties. Make sure that you follow all tenant laws when showing a property that is still occupied. Each state varies, with some prohibiting landlords from showing a unit that isn’t vacant. Other states require at least 24 hours notice before showing a property. It’s always a good idea to provide an information document to prospective tenants with all the rental property details included . Follow up after each showing.
- Review applications. — Tenant applications should be reviewed carefully. During this review process, make sure that all of your evaluations comply with fair housing rules. As part of your evaluation criteria, you will want to complete a background and credit check, contact their listed referrals, review their rental history, and ensure that all provided information is accurate.
- Accept or reject an applicant. — Once you determine that an applicant is qualified, the new tenant will typically have a set period of time to pay the security deposit and any other move-in fees. This is also a great time for the new tenant to apply for renter’s insurance (something you should verify before the tenant moves in). If, however, you decide that the applicant is unqualified, then you will need to let them know as soon as possible. Once again, make sure that the listed reason is in compliance with fair housing rules.
2 – Lease Terms
The lease agreement is a critical component of rental property management. As such, it is important to note that the lease agreement is a legally binding agreement between the tenant and you, which means that it needs to be very thorough. The lease should address property rules and expectations, policies, and conflict resolution procedures. While there are generic lease agreements available online, you should customize the lease to meet requirements specific to you and your property.
If you have hired a property management company, make sure you’re familiar with the details of the lease agreement they have in place and that it works for you.
However, if you are planning on doing everything yourself, then have a legal professional review your lease. Additionally, you should plan on using the same lease agreement for all tenants (changing applicable information as needed, such as name, unit number, lease start and end date, monthly rent, etc.). Even if you use the same lease agreement for all tenants, make sure it stays up-to-date with any new laws or ordinances. Finally, both you and the tenant should have a copy of the signed lease agreement throughout the entire rental term.
3 – Maintenance
Things break; that’s a fact of life. As a property manger, it will be your job to resolve all maintenance issues in accordance with the lease terms. For example, the lease terms might state that you are responsible for resolving any plumbing issues, which means that if the kitchen sink starts to leak, you will be responsible for fixing it. Additionally, you will need to perform seasonal maintenance on the property, such as checking smoke and carbon monoxide detectors, changing HVAC filters, and walking the property to locate any potential issues.
4 – Lease Renewal
It’s important that you submit a lease renewal notification in accordance with fair housing rules and any applicable local ordinances. While some states have tenant protection laws that limit the percentage you can increase rent, other states allow you to increase the rent as much as you like. Regardless of the state you live in, be fair and do what you can to keep quality tenants happy. After all, it can be a costly endeavor to lose a tenant and search for a good replacement.
Tip #2: Know the 4 Parts of a Property Management Agreement
If you’re already overwhelmed by the tasks of a property manager after tip #1, you may want to consider hiring a real estate property management company. There are four key parts of a property management agreement:
- The time frame of the agreement. I.e. how long will you be hiring the property management company?
- The duties, responsibilities, and role of the property management company. It is very important that there is no “gray area” when defining the responsibilities and duties of the property management company.
- What, if any, responsibilities does the landlord/property owner have? Remember that while a property management company is meant to make your life easier, they aren’t necessarily responsible for every aspect of your rental property. By clearly defining roles and expectations, you are more likely to enjoy a successful landlord experience.
2 – Rental Property Management Fees and Payments
The second part of the property management agreement should clearly outline any fees or payments that are owed to the property management company. For example, many property management company’s require a minimum payment of one month’s rent for leasing, marketing, and managing the property. However, fees and payments will vary from company to company. As such, read the fine print and choose a reputable company that is up front about expenses and easy to work with.
3 – Non-Performance
The non-performance portion of a property management agreement clearly outlines the conditions needed for you to replace the property management company. For example, this section might state that if the property has been vacant for 3 months, then you can fire the company without incurring any type of fee.
4 – Rent Ready / Make Ready
This section of the agreement should clearly explain what happens when the tenant moves out. Include a timeline between move out and next tenant move in (some states require a unit to remain vacant for a certain period of time between tenants). This section of the agreement will also explain any costs associated with move ins / move outs, as well as the cost for getting an apartment ready. For example, the apartment might need to be cleaned or items might need to be replaced before a new tenant can move in.
Tip #3: Know How You Will Receive Property Management Reports and Rent
From an investor’s standpoint, one of the top benefits of a property management company is that they provide vacancy/financial reports and easy payment options. With this in mind, you will need to ask two important questions:
In what form will the report come to you and how often?
Like any company’s stockholder report, a property report is designed to help you understand the current state of your investment.
- Is it making money? If so, how much?
- Does it have a high turnover rate?
- Are the tenants dissatisfied or happy?
- Are maintenance costs higher in one season over another?
- How does the property compare to comparable rental properties?
Why should you spend 15 minutes per property per month reviewing reports?
With any investment, the time you spend reviewing its performance is important. A property report offers vital insights into the health of your investment. Each month, you should spend approximately 15 minutes reviewing these reports. If there are any red flags, or you have any questions, comments, or concerns, you should immediately bring them to your property management team. Not only does the property report tell you how your investment property is doing, but it also serves as a report card for your property management company.
Tip #4: Learn How Your Property Management Company Communicates
Everyone communicates differently. However, when the time is right for you to select a property management company, it is important to know how they communicate with you and the tenant. After all, if the company prefers to send text messages, but you like emails, then you are less likely to enjoy a relationship built on clear and helpful communication. This may sound insignificant, but if you and your management company don’t work well together, chances are it will impact the success of your investment.
How do they communicate with tenants / investors?
Knowing how a property management company communicates with a tenant can tell you a lot about what they value in business. For example, does the company offer a personal touch by calling tenants? Perhaps the company prefers to keep things convenient for the tenant by offering a secure online portal where rent can be paid, maintenance requests can be submitted, property reports can be reviewed by investors, and communications can be delivered.
Alternatively, the property management company might have an app that is used for communication and property notifications. Email and texts are two additional channels that the company might use to communicate. No matter the form of communication, it is important that the company is clear, friendly, informative, and mindful of every tenant’s needs.
Tip #5: Understand the Eviction Process: 3 Things To Know
Another property management tip for landlords is to be knowledgeable about the eviction process. Evictions are just a part of owning a rental property. While this process isn’t fun for anybody, as a landlord it’s imperative to follow all rules and regulations governing evictions in your state. Here are some property management tips for landlords to make an eviction process go as smoothly as possible.
1 – Is the state landlord friendly?
Some states are considered “landlord friendly,” which means that they protect the landlord in the event of a tenant eviction. If the state is “tenant friendly,” then it is often much harder for a landlord to evict a tenant. Regardless of the state’s status, an eviction can only occur if certain criteria are met and/or if parts of the lease agreement are broken. Additionally, while a tenant can contest an eviction, it will be the landlord’s job to prove that an eviction is necessary.
2 – How long does it take?
The length of time to evict a tenant will depend on state laws. Some states give tenants as little as three days to vacate the property once an eviction notice is received. However, other states protect tenant rights by allowing up to 60 days to vacate the premises after the eviction notice is received.
3 – What costs are involved?
In addition to any legal fees, an eviction can often result in additional maintenance, marketing, and tenant application costs. After all, once you have successfully evicted a tenant, you will have to ensure that the property is returned to top shape before you can lease it to another tenant.
Tip #6: 3 Landlord Roles and Responsibilities
If you choose to use a real estate property management company, carefully complete the following tasks and responsibilities each month. Perhaps the most important property management tip for landlords is understanding what you’re getting into before you commit to handling all the responsibilities yourself.
1 – Review
As mentioned in Tip #2, spend at least 15 minutes per property reviewing reports. This report will provide insights to know if a) the property is performing as expected, b) you are maximizing your ROI for the property, and c) the property management company is meeting or exceeding your expectations.
2 – Respond
You are putting yourself, and your property management company, at a disadvantage if you fail to read and respond to their emails in a timely manner. Remember, effortless communication is key to a successful business relationship.
3 – Be Reasonable
Like any business relationship, if you want it to be successful, you need to be reasonable. If something isn’t working out, then you need to clearly communicate with the property management company about the issue. Based on their response, you should give them the time needed to correct the error. If, however, the issue worsens or they are unresponsive in their efforts to correct the error, then you should be open and honest in your desire to work with either a new property manager or an entirely different company.
Tip #7: 5 Steps to Find the Right Property Manager for You
Finding the right property manager is vital to owning a successful real estate investment. The following steps will help determine if a property manager is the right fit for you.
1 – Check references
A trusted property manager should have glowing references. Double check that the references come from industry professionals, previous tenants, and investors who own similar types of properties. For example, a property manager who is used to managing an entire condominium might not be the best fit if you have an oceanfront vacation home that needs seasonal rentals.
2 – Read the fine print
Always read the fine print. You don’t want to find out too late that there is a cancellation clause that penalizes you for breaking the agreement ahead of time. You also want to make sure that there aren’t any hidden fees.
3 – Check Out Tenant / Landlord Portal
Once again, communication between the property manager and the tenant (and you) is key. As such, check out the tenant and landlord portals. Are they easy to use? Do they offer clear insights on the property? Is it easy to download, comment on, and read property reports? Does the portal work on smartphones, laptops, and tablets? Does it simplify life for the tenant and you (the investor)?
4 – Find out How They Dealt With Hard Situations in the Past
Knowing how a property manager handles hard situations is vital to owning a long-term investment property. While it’s nice to imagine that every tenant will be “perfect,” or that every property will experience little to no turnover, the reality is often quite different. How the property manager handled a difficult situation, such as an eviction, will give you a good idea if this is someone you want to work with or not.
5 – Shop Around
Don’t be afraid to shop around. Interview more than one property manager. Be sure to compare strengths and weaknesses of each candidate, before you make your final selection.
Property Management Tips & FAQ for Landlords
1 – How much money should you put aside for capital repairs?
There is typically a standard rate of $200 that property managers will assign to each property for single repairs. This standard rate is based on the type of property, as well as the type of repair needed. For example, it might be an emergency repair or basic maintenance. Regardless of the type of repair, the standard rate also refers to the monetary threshold that needs to be met before the owner is contacted. For all repairs, the cost is clearly noted in the monthly property report.
2 – How much do repairs typically cost?
Repair costs will vary based on whether they are considered “regular maintenance” or are an “emergency.” They will also vary in cost depending on the type of repair. For example, fixing a leaky roof can be far more costly than replacing the kitchen sink’s faucet.
3 – How much is a reasonable amount to pay a property manager?
Property manager fees vary greatly, which is why it’s important to carefully read the fine print before selecting a property manager. From flat rate fees to a percentage of rent fees, there are several ways that property managers determine how much they are owed by property owners. The key to knowing what is “a reasonable amount” is analyzing the cost of the property manager compared to the services that they provide.
4 – What is the tenant security deposit used for and why is it important?
The use of the tenant security deposit depends on the lease agreement, as well as the state’s governing laws. Generally speaking, the security deposit is first applied to any move out fees or rent that is still owed. Next, it will be applied to any damages (beyond expected wear and tear) to the rental unit.
By following the above seven property management tips for landlords, you can greatly simplify your life, actually enjoy owning an investment rental property, and maximize your ROI. Whether you go with a real estate property management company, or decide to be your own property manager, the information provided in this post will help you avoid costly mistakes and make the most of your rental properties.