3 Strategies for Managing Rental Property
Taking Care of Your Tenants, Your Property and Your Finances
If a rental property is not managed correctly, it will fall into shambles. Luckily, there are several different ways to manage property to fit every landlords' needs. You can be completely hands on, or you can decide to outsource everything. Here are three management strategies for every potential landlord to consider that will keep your property up, running and generating revenue.
3 Strategies for Managing Rental Property
Before you are able to select the right strategy for you, you need to understand all the different areas of a rental property that need to be managed.
A landlord’s management responsibilities can be broken down into three sections:
- Managing Tenants
- Managing Property Maintenance and Inspections
- Managing Finances
1. Managing Tenants
This is the part of rental property management that is most immediate and most obvious. However, being a successful landlord involves a lot more than just collecting rent. You have to manage:
- Rent Collection: Setting due dates. Collecting rent each week or month. Establishing late fees and grace periods. Dealing with unpaid rent.
- Lease Agreements: Verifying that lease includes all legal terms required by your state’s landlord tenant law. Making sure lease is up to date with most recent version of law. Managing lease start and end date of all tenants.
- Tenant Screening: Advertising vacancy. Setting up appointments. Verifying information on applications.
- Move-In: Signing lease agreements. Going over rules, requirements and regulations. Collecting security deposit and first month’s rent. Walking through and noting current condition of rental unit.
- Move-Out: Verifying that lease term is actually over. Checking the condition of the rental unit for any damage. Beginning the process to find a new tenant for an apartment.
- Tenant Complaints: Fielding complaints. Setting up a game plan to fix the problem.
- Repair Requests: Responding to requests quickly. Prioritizing the importance of repair. Doing the repair yourself or hiring someone to do it.
- Tenant Evictions: Sending tenant legally required notices before eviction. Filing for eviction with the court. Preparing your evidence which supports reason for eviction.
2. Managing Property Maintenance and Inspections
The second main part of rental property management is the property itself. The physical structure needs to be maintained for the health and safety of the tenants. Your insurance company may also require certain parts of the structure, such as the roof, to meet certain standards or they will refuse to insure the property.
- Maintenance: Cutting the grass. Picking up leaves. Shoveling snow. Taking out the garbage. Keeping all common areas clean. Making sure tenants have access to running water at all times and heat in the winter. Fixing roof leaks, plumbing leaks, cracked tiles, loose handrails, faulty door or window locks.
- Inspections: You will have to deal with inspections from the town and even from your lender and insurance company. The town inspections are to make sure your property is following certain health and safety codes. The lender and insurance company inspect the property to make sure the property is worth the amount they are lending or the amount they are insuring it for.
3. Managing Finances
The third part of management that you will have to deal with when owning a rental property involves the finances. You need to understand how much money is coming in each month and how much money is going out.
- Rent Payments: How much you collect in rent each month.
- Mortgage Payment: What you pay each month on your mortgage.
- Insurance: How much you pay to insure your property.
- Taxes: What your yearly property taxes are.
- Utilities: If tenants are not responsible for paying for utilities, how much the water, gas and electric bills are each month for the property.
- Fees/Fines: Fees you may have to pay for property inspections or court costs. Unexpected fines for maintenance issues at the property.
3 Rental Management Strategies
Now that you understand the various areas of a rental property that need to be managed, you can determine how you want to manage these areas.
There are three main approaches:
- Do-It-Yourself Management
- Half Do It Yourself/Half Outsource
- Outsource Management Completely
1. Do-It-Yourself Management
In this management approach, you are responsible for everything, hence, DIY. You are the one who is collecting rent, shoveling snow and filing your taxes.
- Total Control: As a rental property owner, you are a business owner. When you do it all yourself, you know what is going on in all parts of your business.
- Aware of Problems Quickly: Since you have your hand in all parts of management, you are able to see right away when a problem is occurring. Unfortunately, because you are in charge of all things at your property, you still may not be able to address this problem right away.
- Lack of Knowledge: It is impossible to be an expert at everything. If you had hired an accountant to file your taxes, instead of doing it yourself, the accountant might have caught several deductions that you were not aware of. If you had hired a lawyer to prepare your lease agreement, instead of preparing your own lease, the lawyer might have included certain state landlord tenant laws that you overlooked. If you had hired a professional to install the roof on your property, instead of installing it yourself, you may not have had to deal with a roof leak.
- Overwhelming: Being all things to all people can become too much. Since you are taking responsibility for everything, you may be more prone to make mistakes.
- Landlords with a small number of rental units.
- Landlords who have previously owned businesses.
- Landlords with prior experience in managing rentals.
- Landlords who want control.
2. Half Do-It-Yourself/Half Outsource
In this approach for managing rental property, you manage the areas that you feel you have expertise in and then outsource the areas that you do not feel as comfortable with or simply do not have the desire to manage.
- Outsource Legal Issues
As an example, you could decide to outsource any rental management issues that involve legal matters.You may feel great about managing the finances of the property, the daily maintenance and tenant complaints, but are very uncomfortable when it comes to legal issues. In this case, you could hire a lawyer to handle any legal issues that arise. This could include drafting your lease agreement so that it complies with all of your state’s landlord tenant laws and handling all tenant evictions.
- Outsource Maintenance Issues
In this scenario, you would hire a handyman or building superintendent to deal with all maintenance issues, but would handle all other management obligations yourself.
- Frees Up Time: If you are not doing everything, you will have more time, period. How you use this time is up to you. You may cherish more time with your family or you may use this time to find additional investment opportunities.
- Have Experts: You are giving up control to others who hopefully know more than you in a certain area.
- Relying on Others: You are putting your trust that these people know what they are doing and that they have your best interests in mind.
- Landlords with growing number of rental units.
- The average landlord.
3. Outsource Management Completely
In this management strategy, you own the property, but have no desire to be a hands-on manager. You feel that your strength is in property selection, not managing the daily operations. You will hire a property manager or property management company. Property management companies can handle everything including, tenant screening, tenant move-in, rent collection, maintenance and repairs, tenant move-out and tenant eviction.
- Freedom From Daily Headaches: You will not have to field the phone calls at two in the morning that the next door neighbor is playing their music too loudly. You will be responsible for the bare minimum, but the decisions you are responsible for will typically be the most important decisions, such as giving the OK to begin a tenant eviction.
- Costly: Property managers will cost tens of thousands of dollars a year. The more rental units you own, the more it will cost.
- Mismanagement Can Destroy Your Business: You are putting your business and thus, your livelihood, in someone else’s hands. It will be very hard to find someone who cares about your success and failure as much as you do. You must make sure you thoroughly screen any prospective managers and have a clear exit strategy if things go bad.
- Landlords who live far from their rentals.
- Landlords with a large number of rental properties.
- Property investors with diversified investments.