If you are one of the many people that own single family home rentals or if you are contemplating buying rental homes you will be well advised to learn all you can about the business of property management. Owning rentals is not just about buying the property and finding a tenant. There are many things to learn. In this article I will discuss just five of the elements that I feel are very important to master.
First, you must be able to estimate the rent of a particular property with some certainty. It is not enough to guess the rent just based on what nearby rentals are going for. Of course, you need to use that as your guide. You must also be able to compare the subject property (your contemplated purchase or the one you currently own) to the market after taking into account the interior floor plan and condition. The floor plan of a home is very important and should not be underestimated. Does the house have an appealing setup? Is there a logical way to get to the backyard? Is the patio set up to make the yard a pleasant place that will get used? What is the condition of the carpet, walls, and bathroom? Is the kitchen appealing? All of these items impact how much rent you will be able to garner. Using online rent surveys and online listings and combining that information with the subject property will help you in evaluating a property for purchase, setting rents when vacant, and determining rent increase amounts.
Second, you must know how to screen prospective residents. You must have a way to obtain credit reports and run them on every adult applicant. Teach yourself to interpret the reports. They contain information such as last know addresses in addition to pay history and rating. Screening also involves knowing how to detect fake landlord references and falsified employment documents. Desperate applicants will take desperate measures to get into your home. This is the key to success in owning rental property. It is also the reason some landlords fail. They do not learn this essential skill.
Third, you should be evicting late or non payers sooner rather than later. Too many landlords listen to the stories of their delinquent tenants and let them slide for two or three months. The old adage is, “You mother carried you for nine months, but I will only carry you for one”. When the rent is late, follow up immediately. If you are not successful in contacting the resident by phone, go to the property with a 3 Day Notice and serve it. They may have skipped out and this action will answer that question. Once the notice expires you should move forward with the eviction unless that tenant has given you some real hope in the form of a partial payment or a promise to pay in just a few days. Remember, if your tenant cannot afford one month, they for sure cannot afford two.
Fourth, do not let tenants make repairs to your property. This is a lesson in risk management. The question is, how qualified is your tenant to paint, fix the stove, install carpet or do anything else? The next question is, if something goes wrong, are they covered for workers compensation? Are you covered for liability if they injure someone else doing work for you? The bottom line is that you might save some money, but your liability goes way up.
Fifth, keep the property in good repair. At our firm we schedule every occupied property for an annual inspection. This inspection covers most easily seen items like caulking, visible leaks, carpet condition, appliance condition, and cleanliness. An added benefit is that by getting inside your rental property annually, the resident is less likely to cause major damage or be involved in illegal activities since you are getting inside regularly. We also suggest that our clients property be inspected by a licensed structural inspector (sometimes called a termite inspector) every two years. While most owners do not take this suggestion, at least the annual visual inspection will catch most problems. You might also want to have a roofer inspect your roof every two or three years. This inspection is normally done at no cost and you will get a free bid for any repairs. Most property managers have a trusted roofer they use.
Managing your investment houses is an important part of owning rental property. Whether you hire a property manager or do it yourself, you need to know what needs to be done to make your investment successful.
Alexandra Goldthwaite, CPM, RMP | Broker Associate