How to Manage Rental Properties

You’re ready to start your real estate rental business, but how do you manage your tenants and properties? First, you’ll need to decide whether to save income and manage your business yourself or hire a property management service.

This guide shows you how to manage a rental property with either option to help you make the right choice for your needs.

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Managing Rental Properties Yourself

You can save about 8% to 10% of your monthly rental income by managing your own rental property. There are three core tenets to consider when you manage property on your own:

• Renting to Tenants
• Property Maintenance
• Bookkeeping and Rental Property Finances

Managing Tenants

When it comes to rental property management, tenant relationships can make or break your success. A well-managed tenant relationship can lead to longer leases, timely rent payments, and reduced property wear and tear. This leads to higher profits and less stress. 

Here’s a guide to successfully managing your tenants yourself:

1. Start by Screening Tenants

Start on the right foot by selecting reliable tenants. This typically involves the following:  

• Begin the tenant screening process by checking financial histories. Get a credit report to assess the tenant’s ability to pay rent.
• Contact the previous landlord to learn about the tenant's past behavior.
• Conduct background checks to identify potential issues that might affect their tenancy.

2. Keep Open Communication

Setting clear expectations from the outset is essential. Establish open channels for communication. This can be through emails, phone calls, or property management apps. Regularly check in with your tenants to understand their needs and address concerns.

3. Ensure Swift Response to Maintenance Requests

Tenants' primary grievances are typically in response to slow response to maintenance requests. Addressing these issues promptly keeps your property in good shape and shows tenants you value their comfort and safety.

4. Maintain Rent Collection and Increase Schedules

Consistency is key. Set a fixed monthly date for rent collection and ensure your tenants are aware. If a rent increase becomes necessary, give ample notice and provide justification, like increased property taxes or maintenance costs.

5. Respect Privacy

While the property belongs to you, it's the tenant's home. Avoid frequent visits or inspections without prior notice. Respect their privacy and schedule visits in advance, ensuring it's a convenient time for them.

6. Handle Conflicts Professionally

Disagreements are natural, but it's crucial to address them professionally. Avoid heated arguments. Listen to your tenant's concerns and propose solutions that work for both parties. Remember, the goal is to foster a long-term, harmonious relationship.

7. Establish Renewal and Termination Guidelines

If a tenant is reliable and the relationship is good, consider offering them a renewal before seeking a new renter. This reduces turnover costs and guarantees continued income. If a tenancy must be terminated, follow the legal process diligently. Provide the necessary notices and clearly communicate the reasons for termination.

8. Know the Law

Familiarize yourself with local tenant rights and laws. This includes understanding eviction processes, security deposit regulations, and tenant discrimination laws. Knowledge of the law protects you from potential legal disputes and ensures you treat all tenants fairly.

It’s crucial that you protect your personal assets from business lawsuits and creditors. Use our guide to form an LLC yourself – it’s easy, relatively inexpensive, and it will help protect your finances. 

9. Create a Tenant Handbook

This can be a valuable resource for new tenants. Include details like garbage collection days, emergency contacts, how you will be collecting rent, and property-specific rules. It serves as a reference point and reduces the frequency of basic queries.

10. Encourage Feedback

Always be open to feedback. Encouraging tenants to provide insights about their living experience can help you make necessary improvements. Consider sending out an annual survey or simply asking them during regular check-ins.

More Rental Business Resources

If you need help starting your buy and rent business, check out our other rental business resources:

• How to Start a Real Estate Investment Business
• How to Start a Buy and Rent Real Estate Business
• How to Buy Rental Properties
• How to Create a Property Investment Plan for Your Buy and Rent Business

Rental Property Maintenance

Effective rental property management extends beyond tenant relationships. Ensuring that the investment property is well-maintained is crucial for tenant satisfaction and long-term value. Regular maintenance can prevent small issues from escalating into costly repairs and keep your property attractive to prospective tenants.

1. Conduct Regular Inspections

Schedule periodic inspections to identify potential issues. This helps catch problems early, such as water leaks or structural issues, before they escalate. Conducting these checks at least bi-annually or during tenant turnover is advisable.

2. Address Urgent Repairs Promptly

Urgent issues like broken heating systems or plumbing problems need immediate attention. Quick responses protect your property and show tenants you prioritize their comfort and safety.

3. Keep Up Preventative and Seasonal Maintenance

It's often cheaper to prevent an issue than to fix it. Regularly clean gutters, check roof tiles, service heating systems, and inspect for pests. This proactive approach can save you considerable money and stress in the long run.

Certain tasks might be season-specific. For instance, ensure insulation is adequate before winter and heating systems function. In spring, check for any winter damage and clean out gutters.

4. Maintain Property Aesthetics

Ensure the property's exterior is appealing. Regularly mow lawns, trim hedges, and touch up paint. A well-presented property can attract and retain tenants and potentially justify a higher monthly rent.

Beyond just maintenance, consider periodic interior upgrades. Updating appliances, fixtures, or even a fresh coat of paint can increase property value and justify rent increments.

5. Establish a Maintenance Budget

Allocate a portion of your rental income for maintenance. This ensures you have funds for regular upkeep and unforeseen issues.

6. Build a Reliable Contractor Network

Establish relationships with trustworthy contractors, plumbers, electricians, and handymen. A reliable team ensures quality work and often gets you priority service and better rates.

7. Outline Tenant Responsibilities

Clearly define in the lease agreement what maintenance tasks are the tenant's responsibility, such as changing light bulbs or maintaining gardens. This clarity prevents disputes and ensures tasks are attended to.

8. Maintain Records

Document all maintenance activities. This includes date, nature of work, costs, and contractors involved. These records can be invaluable for tax deductions and in case of any tenant disputes.

9. Conduct Safety Checks

Ensure all safety systems, like smoke detectors and security alarms, are functional. Regularly inspect property features, like balconies or stairs, to ensure they are safe and meet regulations.

10. Seek Tenant Feedback

Tenants live in the property day in and day out. They might notice things you miss. Regularly solicit feedback regarding potential maintenance issues or areas of improvement.

Managing Bookkeeping and Finances

For rental property owners, meticulous financial management isn't just advisable; it's imperative. Ensuring a clear understanding of your property's financial health is essential for its profitability, long-term viability, and growth.

1. Ensure Accurate Recordkeeping

Maintain detailed and accurate records of every financial transaction related to your property. This includes rent receipts, maintenance invoices, insurance payments, property taxes, and mortgage payments. Digital accounting software tailored for property management can be invaluable in this endeavor.

2. Separate Business and Personal Finances

Maintaining a clear distinction between your personal finances and those related to your rental property is crucial. Consider opening a separate bank account exclusively for property-related transactions. This simplifies tracking and auditing processes.

3. Conduct Regular Financial Reviews

Periodically (e.g., monthly or quarterly) review your property's financial statements. This lets you track profitability, identify financial trends, and make informed decisions on potential rent adjustments or property investments.

4. Manage Budgeting, Forecasts, and Cash Flow

Budgeting and Forecasts
Establish an annual budget for your rental property. Factor in predictable costs like property taxes, insurance, and routine maintenance. Additionally, allocate funds for unforeseen repairs or vacancies. Revisit and adjust this budget as needed based on actual income and expenses.

Over time, large expenses, such as property renovations or significant repairs, are inevitable. Allocate a portion of your rental income to a dedicated savings fund for these anticipated major costs.

Cash Flow
Cash flow is the lifeblood of any rental property. Ensure rent is collected promptly, and be vigilant about any overdue payments. Conversely, schedule your bill payments to ensure they’re timely, avoiding late fees or penalties.

5. Understand Tax Implications

Familiarize yourself with local tax regulations about rental income. This includes understanding allowable deductions such as depreciation, mortgage interest, and maintenance costs. A professional accountant with expertise in real estate can be invaluable.

6. Determine a Depreciation Strategy

Rental properties can benefit from depreciation, which can provide significant tax advantages. Consult with a tax professional to understand how to best leverage depreciation for your property and ensure compliance with tax laws.

7. Obtain Insurance and Risk Management Policies

Ensure that your property and business activities are adequately insured. Regularly review insurance policies to ensure they match the value and risks associated with your property. Consider liability insurance to protect against potential lawsuits from tenants or visitors.

8. Consider Continuous Learning and Professional Assistance

The financial landscape, especially in the realm of real estate, is constantly evolving. Stay updated with financial trends, tax laws, and accounting best practices. Additionally, consider hiring a professional, such as an accountant or financial advisor, to guide your financial decisions and strategies.

Hiring a Property Manager

For many rental property owners, there comes a time when managing the day-to-day aspects of their investment becomes challenging or simply isn’t feasible. This is where a property management company steps in, offering expertise and handling responsibilities that range from tenant relations to property maintenance. 

However, with many companies to choose from, how can an owner ensure they're making the right decision? Below are some key points to go over during the selection process:

1. Determine Your Needs

Before diving into the selection process, understand precisely what you expect from the company. Do you need full-service management, or are you only looking for help in specific areas like tenant placement or maintenance?

2. Conduct Research and Seek Recommendations

Start with recommendations from fellow property owners or real estate professionals. Additionally, online reviews and ratings can provide insights into other clients' experiences with potential companies.

3. Check Credentials

Ensure the company is licensed and has relevant credentials. Associations like the National Association of Residential Property Managers (NARPM) provide certifications that attest to a company's professionalism and expertise.

4. Consider Services and Costs

Clear communication regarding services provided and associated fees is crucial. Understand their fee structure: Is it a flat monthly fee, a percentage of the rental income, or a combination of both? Ensure there are no hidden costs.

5. Ask About Offerings

A property management company will be your tenants' primary point of contact. Ask about how they handle:

• Tenant Relations – This could include tenant screening, handling disputes, evictions, and regular communication.
• Maintenance and Repairs – How does the company address maintenance requests? Do they have in-house maintenance staff, or do they contract out?
• Reporting – A transparent property management company will regularly report your property's financial and physical status. Discuss the frequency and detail level of these reports.

6. Review Your Contract

Once you've zeroed in on a company, carefully review the contract. Ensure it outlines all agreed-upon terms, including services provided, fees, and the contract's duration.

Beyond the technical aspects, trust your gut feeling about the company. A good rapport and open communication are vital for a successful partnership.

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