While residential rental properties are often referred to as passive income investments, they’re not simply a type of investment where you can expect the money to just come rolling in without putting in some work. Sure, you can hire a residential property manager to take care of things for you. However, choosing to control your rental investment directly lets you keep as much money as possible from your earnings. In fact, Zillow estimates that it’ll save you somewhere between 8-10% of rental income! If you’re looking for residential property management tips and best practices, you’ve come to the right place. Here’s how to be a DIY residential property manager.
1) Preparing the Rental Property
After buying an investment property, it’ll most likely need some repairs before it can be put on the market for rent. Many of the preparations are minor and you could probably do them yourself even if you don’t have experience. We’re not talking about major home renovations, but rather small issues that need fixing to make the rental property inhabitable. Replacing the floor, loosening a stuck window, and fixing leaking faucets are a few examples of basic repairs real estate investors or landlords can take care of themselves.
Adding curb appeal is also another great tip as not only will it increase the investment property’s value, but it will make it look attractive and desirable to prospective tenants. Minor inexpensive cosmetic touch-ups like landscaping and siding are some of the best practices to enhance your rental property. Also, consider hiring a cleaning service to make sure the rental property is clean when showing it to prospective tenants.
Our residential property management tip here is for landlords to have a budget for repairs and be aware of the costs. Therefore, try to get a home inspection before buying the investment property to get a better estimate of those costs.
Here are another 14 Things to Consider Before Buying Investment Properties in 2019.
2) Setting How Much to Charge for Rent
An important aspect of your residential property management plan is how much rent you should charge. Once you have the investment property ready, research the average rental rate and the number of rental properties available in your area. Real estate investors typically do this step before buying an investment property and during their rental market analysis. This allows them to understand how profitable it is to buy rental properties in this specific location. So, don’t neglect this step if you haven’t done it already.
To perform a rental market analysis, you need to compare your investment property to other similar ones (real estate comps) in the area. Make sure they’re similar in terms of square footage, purchase price, condition, and amenities. Next, check how much landlords of these rental properties are charging and set your rent accordingly. Keep in mind that you can adjust your rental rate if you offer special amenities. For example, if you allow pets in your rental or have security systems, you can charge higher than comps that don’t.
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3) Screening Prospective Tenants
This step is the one that will take the most of your time as a landlord as it’s the most important aspect of residential property management! Tenants play a major role in rental property investment. One of the critical risks for real estate investors is getting the worst tenants. While it’s easy to put a tenant in your rental property, it can be very difficult to remove a bad tenant. So, taking the time to properly screen and select great tenants gives landlords the highest chance of making their real estate investment successful.
Great tenants respect your rental property, pay their rent on time, and do not cause unnecessary problems that leave you with more work – and headaches. When you find a tenant, you need to get a more complete picture of their background and likelihood to pay on time. To achieve this, real estate investors handling residential property management themselves should watch out for these red flags and follow these best practices:
- Confirm their employment location and income
- Do a credit, criminal, and eviction history check
- Call their references
- Call their former landlords
- Have a one-on-one, in-person interview with them
4) Checking On and Maintaining the Property
Your rental property is not just a real estate investment – it’s someone’s home as well. Therefore, one of the legal residential property management responsibilities for landlords is to keep the property in a safe, comfortable, and habitable condition when renting out to tenants. For example, if a tenant signs a lease with a working air conditioner, then they are legally entitled to have that air conditioner maintained and operable for the term of the lease.
In addition, because you are lawfully required to maintain the rental property on behalf of your tenants, they have the right to request repairs. Ignoring their requests or trying to cut maintenance expenses may cost you more money in vacancy than the initial cost of maintenance.
One of the best practices is to visit your tenant at the rental property and check that everything is working well every once in a while. This way, you can take care of repairs right away before they turn into serious damages. Moreover, this is an excellent way to keep the lines of communication open and build a great landlord-tenant relationship.
5) Collecting Monthly Rent
One of your most prominent duties as a residential property manager is rent collection. It’s important for real estate investors that a clear process is followed in this regard and that the rent is paid in full and on time. If your tenant is consistently late or the rent comes in multiple payments, this will hurt your monthly rental income and cash flow. One residential property management tip, in this case, is to send your tenant written reminders that rent is due.
Moreover, every landlord has a preferred method for collecting rent. While some still get checks dropped off or mailed to them, others prefer using management software and an electronic rent collection service to ensure they’re getting paid. There are pros and cons to each method, but ultimately, it’s up to you to decide which type suits your needs. If you do choose to use online management software for rent collection, remember that there will be a fee involved. So, you should work this fee into your rental price and account for it in your monthly expenses.
No landlord ever wants to end up in this position. Ideally, you can prevent an eviction in the first place by screening applicants carefully to select high-quality tenants. Nonetheless, it’s still possible that a real estate investor of rental properties will have to go through an eviction at one point or another. If you’re a new landlord and you’ve chosen to take control of your residential property management, you may have no idea what to do in this situation.
The best tip for you here is to research your local laws to ensure that you are following all the rules. Also, new landlords should know that it’s vital to give notice to the tenant and file for eviction in court. Never attempt to evict a tenant yourself by changing the locks, for example! This can be considered a criminal offense. Save yourself the trouble and follow these basic steps:
- Give tenants official notice, including how long they have to fix the problem breaking their lease agreement
- If the notice terms are not met, file the eviction with the court
- Read local laws to be sure you’re not breaking any rules
- Hire a lawyer if the laws are confusing for you
- Wait for the court ruling and the local sheriff to perform the actual eviction
Keep in mind these are just common steps and may differ from one state or another in the US housing market. For example, some states are considered landlord-friendly and allow you to give a 5-day notice or the tenant will be evicted immediately. Other states, however, are tenant-friendly and will require a 14-day notice to fix the problem or move out of the rental property.
Another aspect of residential property management that you may not be familiar with is the amount of taxes and other accounting information that you will be handling. With rental properties, there’s always payments coming in (rental income) and payments going out (repairs, maintenance, advertising, tenant screening, etc.) Therefore, it’s crucial for real estate investors to keep accurate financial records and stay on top of accounting to ensure positive cash flow.
A professional property management company would produce this information in reports for you. Doing it on your own, however, can be more complicated. To make accounting for your rental property investment easier, follow these best practices and tips to keep your financing in order:
- Keep your personal and business accounts separate to make sure your expenses don’t get mixed up
- If you own multiple rental properties, use separate bank accounts for each rental
- Have a solid system for tracking and keeping thorough records of your expenses and income
- Hire a CPA to do your taxes: they’ll help you maximize deductions and ensure a clean record so the cost is worth it
- Set aside money to cover taxes and other unexpected costs that may surprise you
Extra Residential Property Management Tips:
#1 Be Resourceful and Use Management Software
As mentioned, a real estate investor has to have a solid system in place for tracking the expenses and income for his/her investment property. If you’re an owner of multiple rental properties, this becomes even more important as things can get complicated. Luckily, there is a wide variety of rental property management software to help landlords keep their finances in order and minimize the hassles of residential property management.
#2 Show the Property When It’s Occupied
One thing that professional property managers never do is wait until the rental property is vacant to start advertising it. While you can’t avoid vacancies, you can reduce the time your investment property sits empty by listing it before evicting your current tenant. By the time the outgoing tenant has left, you’ll hopefully have found a new tenant to occupy your rental property. However, make sure to handle the situation properly with your tenant. Tell them that you’ll start showing the property and be as respectful as possible to their schedule so they’ll be more willing to cooperate with you.
#3 Take Out Landlord Insurance and Renters Insurance
After buying your investment property and preparing it to be a rental, don’t forget to take out landlord insurance. Becoming a landlord can leave you open to different liabilities. Landlord insurance will cover your real estate property, lost rental income, and any injuries that occur on or near the property. Also, a smart landlord requires renters insurance from tenants. While security deposits can cover most damages done to rental properties, sometimes it isn’t enough. So, with renters insurance, you can provide further security for yourself and your tenants’ belongings.
Final Notes on Residential Property Management
There’s nothing wrong with hiring a professional property manager to take care of all this work for you, making your rental property a passive income investment. However, sometimes it’s best to be your own residential property manager and save yourself some money by doing some basic duties yourself. Now that you know the basics of residential property management, let’s put this knowledge into action.
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