HOW TO MANAGE YOUR RENTAL PROPERTY
Most rental property investors choose to hire a professional rental property management company. This makes their rental properties passive income, as they are not actively managing their investments. But if you want to take control of your rental property and manage it yourself as an active income enterprise, there are some things you need to keep in mind. Let’s guide you through the important responsibilities.
Key Responsibilities of Rental Property Management
Rental property management involves three responsibilities:
- Managing your rental property
- Dealing with your tenants
- Controlling your finances
Managing the property can include things like handling complaints, dealing with issues on the property (such as finding a plumber), and general property maintenance. You also have to deal with tenants, including screening them. And you have to handle any tenants who damage your property or don’t pay their rent. And then of course there’s the finances part, including paying for the maintenance and general upkeep, keeping track of rental income, and filing your taxes.
Set Prices and Expectations
The most important rental property management decision involves setting the rental price. No one wants to pay too much rent. But you also don’t want to rent at a low price. So you need to balance your desire to make a profit and tenants who do not want to overpay.
Also, you must establish your rental property’s management expectations. What types of tenants do you want? What factors determine whether or not you rent to them?
Your ideal tenant expectations may include:
- Minimum income
- Employment requirement
- Credit score minimum
- Pets or no pets
- Smoking or no smoking
- Past rental history
- The number of required references
Your expectations may also include how your tenants should behave. Establish house rules and include them in the written lease agreement. That way you convey your expectations so your tenants know how to follow them. And it keeps tenants from abusing your property for fear of eviction. Also, making these expectations into rules allows you to take legal action for violations.
How to Set Tenant Rules
Efficient rental property management means making sure your tenants are happy and adhere to the rules you’ve put in place.
The types of expectations and penalties you should include in your written lease agreement include:
- Explaining if there is a grace period for late rent and what actions you may take to penalize late payments.
- Establishing your right of entry within state laws. Under what circumstances and how may you enter the property? Explain the types of emergencies that allow entry sooner.
- Quiet hours. Set the times when loud music, TVs, and parties need to become quieter.
- Outside landscaping and upkeep for rental homes explaining the duty to mow the lawn, pick up debris, trim the shrubs, remove ice and snow, etc.
- Garbage removal rules about how and when to remove the garbage and rules about composting and recycling.
- Attaching satellite dishes where and by what means.
- Use of kitchen and other appliances like not allowing grease in drains or garbage disposal, never leaving the stovetop unattended and cleaning the refrigerator regularly. Also mention that failing to notify you of the need for maintenance or repairs may lead to repair costs by the tenant.
- Pet policies like never allowing pets or restricting dog breeds and size or prohibiting exotic or dangerous pets.
How to Set Rental Prices
As an investor, you want to realize the greatest profit and maximize your rental yield to enjoy higher cash flows. You do this by performing a rental market analysis.
This requires researching the rental rates in your local market. You do not want to set your rental rates too high because potential tenants won’t rent from you, leaving you with vacant property. Avoid losing out on months of rental income by researching these factors about the neighborhood:
- The average income of the residents
- The average family size in the neighborhood
- Average rental price
- The neighborhood’s benefits (close walk to the subway station or bus stops, easy highway access, off-street parking, nearby schools, parks, restaurants, shopping, etc.)
Setting a fair market rental rate means being able to rent your property quickly. An ideal rental price makes it affordable to tenants while being profitable for you.
Some of the factors that determine a fair market rental price include:
- Type of property (house, apartment, or condo unit)
- Square footage and number of bedrooms and bathrooms
- Location (comparing similar rentals on the same street or neighborhood)
- Home or building amenities (pool, BBQ area, secure parking, security, etc.)
How to Rent Out Your Property
If you have a house you want to rent, you need to find tenants. First, you need to advertise. You can use a service like Craigslist, which offers real estate rental advertising for most major cities in the country. You can also use apartments.com, which provides rental listings for apartments, condos, houses, and townhouses.
- But don’t rent to the first person who applies. You want to find a good tenant. So seek a tenant who pays the rent promptly, respects your property, and doesn’t cause problems.
- Prepare a written questionnaire to help you interview applicants and find the right fit.
- Make sure you are aware of anti-discrimination laws. That means not asking questions about things like race, religion, disabilities, family size, or sexual identity.
- And you must follow state and federal fair housing laws.
Once you’ve interviewed potential tenants, check their references. And run a background check and credit check. You should also contact their past landlords to get an idea of what they are like as tenants.
How to Check and Frequently Maintain Your Rental Properties
Your written lease agreement should specify how you may inspect your property and maintain it. Every state has landlord/tenant laws that address landlords’ rights to inspect and maintain their properties.
Typically, state laws require you to keep your property habitable, healthy, operational, and safe. To accomplish these requirements, you must get access to visit and inspect the property. Also respond when your tenant notifies you of broken appliances, unsafe utilities or other dangerous conditions.
Frequently check for leaks, replace air filters, test smoke, and carbon monoxide detectors, clean gutters, and trim trees.
How to Collect Rent
Managing a rental property also means collecting rent. Your lease agreement should specify the amount of the rent, the due date, and payment methods. Most landlords set up an online payment system that allows tenants to pay with a credit or debit card. Automatic payment systems like direct bank deposits are also a good option.
Set up a payment method that works for you. But make sure it’s clear for your tenants and is consistent.
How to Handle Evictions
One of the biggest challenges of rental property management is handling evictions. No one wants to deal with evictions but sometimes it’s unavoidable.
- Read up on the laws of your state to make sure you understand the procedure. You need to follow the proper court process or you could face issues later.
- Make sure you give tenants an official notice, including how much time they have to fix the problems.
- File an eviction with the court. Once you have filed for eviction, don’t accept rent payment as it can nullify the eviction process. You need to wait for the court hearing and local law enforcement to actually evict the tenants.
- The rules can be confusing, so you might consider hiring a real estate attorney or property management company with their own lawyers to help you with the eviction process.
How to Handle Your Rental Properties Management Accounting
Learning how to manage rental property requires good accounting practices. Don’t make bookkeeping or accounting mistakes. This can lead to lost profits and tax problems.
Keep proper records of all income. And itemize rental property expenses, as this helps you get deductions when you file your taxes.
Filing taxes can get confusing because the forms and questions differ from other types of income tax returns. You need to make sure you have records and receipts for everything.
Consider Hiring a Property Manager for Your Rental Property Management
If rental property management responsibilities overwhelm you, consider hiring a professional property management company. Let them take all the hassles and reduce your stress.
A good property manager takes care of the property for you and also:
- Uses its experience to find quality tenants
- Avoids legal problems by knowing federal and state laws
- Finds new tenants faster resulting in fewer vacancy periods
- Seeks quality longer-term tenants
- Collects rents efficiently
- Handles evictions using skilled real estate lawyers
- Adds value to properties with preventive maintenance
- Contracts with competent fair-priced repairpersons
- Saves taxes through efficient recordkeeping and tax deductions
Differences Between Managing Single-family and Multifamily Homes
The two most common real estate investments involve single-family homes and multifamily homes. And there are a lot of differences between the two.
Some of the advantages of single-family homes include:
- Single-family homes are more affordable
- Greater demand causes single-family homes to appreciate more than multifamily homes
- Single-family-home renters make better tenants than multifamily-home renters because they tend to take better care of the property
- It’s also easier to sell a single-family home than a multifamily building
But multifamily homes boast a few advantages over single-family homes such as higher rental income with multiple units.
There are a number of things to consider when renting out a property. Real estate investing is not a passive investment, but an active one. Finding tenants, maintaining the property, and collecting rent can become very time-consuming.
If all these responsibilities become too much for you, think about hiring a professional property management company. Let them relieve you of the stress and time that an active rental enterprise entails.