How To Manage A Rental Property: Tips For Rental Property Management
In the United States alone, around 114.4 million people rent the place they come home to everyday. The American rental market represents a huge opportunity for property investors, but it also comes with its fair share of elbow grease required to keep the gears turning.
Unfortunately, managing a rental property isn’t usually a plug-and-play affair: the work doesn’t stop once the property is bought or even once the first tenants move in. Landlords and property investors hold the responsibility of maintaining their properties for the tenants who live in them, as well as for maintaining those properties and all of the associated finances. Rental property management can be a maze of red tape and maintenance requests that new landlords might find overwhelming. If you find yourself drowning in the logistics of owning or a rental property, or you’re just looking for a high level view of the property management workflow, this is the guide for you.
Landlord Responsibilities & Obligations
Keeping up with the responsibilities and obligations of rental property management is the line separating the landlord from the slumlord and the successful rental property from the money pit. If you want to ensure that your property investment venture is both ethical and profitable, you’ll want to dot your Is and cross your Ts in the following areas.
Tenant management is arguably the single most important element of being a landlord. You could own the nicest unit in the city, but without tenants to occupy and pay rent for it, you’ll never make a return on your investment. Tenant management includes roles like finding tenants, vetting them, collecting rent, fielding maintenance and other requests, and ensuring you comply with all landlord-tenant laws and regulations.
Where there are things that work, there are things that break. Keeping your property in good shape is essential for both you and your tenants. As a landlord, you have a legal responsibility to handle any maintenance and repairs necessary to keep the rental units safe and amenable for your residents. Even beyond what’s required by law, good property management can also save you money on tenant turnover and more costly repairs down the line.
Most people don’t decide to become landlords for the fun of it. Turning a profit is the end goal of rental property investment, and without good financial management, you’ll struggle to make back what you spend on tenant outreach, maintenance, property taxes, and other ongoing expenses. What’s worse, if you don’t keep up to date with your financial records and tax filings, you could find yourself in legal trouble as well.
How To Self-Manage A Property
Self-managing rental properties isn’t the only route available to you as a landlord, but it’s good to have an idea of what the property management umbrella entails, whether you decide to do the work yourself or to outsource it to someone else.
Determine The Fair Market Value
Before you can advertise your unit and start taking tenant applications, you need to decide how much you can reasonably and ethically charge for rent. Some important factors that can help you land on a number include the median household income in your area, what kind of tenants you can expect to find (i.e., is the area mostly single families? Young professionals? Or is it a college town with a large student population?), and how much rent other landlords are charging for comparable units in your area.
You should also take into account the amenities of your unit when deciding on a price. For example, if your rental property is walking distance to the university or comes chock full of shiny new appliances, that could be grounds for a higher rental price.
Market The Vacant Home For Rent
After you’ve decided on a fair market value, it’s time to find the lucky people who will call your unit home for the duration of your leasing period. Before you list your rental unit online or stick a sign in the yard, you’ll want to ensure that you’ve made any outstanding repairs and handled any preventative maintenance.
It’s your responsibility to provide a safe and hospitable dwelling for your tenants, so make sure to tick all of the boxes, such as checking smoke and carbon monoxide alarms, ensuring the unit is free of mold and pests, and verifying the unit has heat and hot water.
After that, it’s time to list your rental property online. Wait for the time of day when the lighting inside the rental is best before you take your listing photos, and be sure to list all of the rental’s best selling points in your description. Cross-posting your unit across different listing websites and social media platforms can help you gain more eyes on your property, and for an added bonus, many of these websites provide an online application feature so that you can pre-screen for qualified applicants.
Because you’ll need to run background and credit checks and pay for any online application service you use, you can offset your costs by charging an application fee. Just be sure to check your local regulations, as some cities and states have laws about what application fees can be used for and how high they can be.
When screening applicants, you’ll want to check for things like credit history, past evictions, and criminal history. These factors can help you assess the risk that a given tenant will default on their rent or leave your unit in bad shape. Once you find your chosen applicant, you can collect a security deposit and arrange for them to sign the lease and pick a move-in date.
Inspect & Maintain The Property
Your work as a landlord doesn’t end once you’ve found a tenant. It’s important that you still handle preventative maintenance on the property and respond to any tenant maintenance requests in a timely manner, both legally and for the sake of avoiding more costly repairs in the future. It’s wise to do your research and keep a list of local appliance repair techs, HVAC repair people, plumbers, electricians, and other contractors that you can call in case a problem arises.
Collect Rent & Enforce The Lease
Rent is where you can finally expect to make a return on your investment. Work with your tenants to establish a monthly due date for rent. While there’s no federal law surrounding grace periods, some states may have rules about how soon after a missed rental payment you can charge a late fee, and for how much. Make sure you clearly communicate all due dates, grace periods, and late fees to your tenants as well as providing an online portal where they can submit payments. The easier it is for your tenants to pay rent, the more likely it is that they will.
Evict Tenants Who Don't Pay Rent
In a perfect world, your applicant screening process would net you tenants that always pay in full and on time. Unfortunately, sometimes circumstances change after leases are signed, and tenants can’t or won’t pay their rent any longer. It’s your legal right as landlord to evict tenants who fall delinquent on their rent payments, but your tenants also have rights that you must abide by in order for an eviction to be legitimate. Research the laws in your state for information about how much notice you’re required to give before pursuing an eviction against a tenant and what the legal eviction process entails.
Use A Good Property Management System
There are a number of different services and software solutions to help you keep all of your property management logistics in some place. Services like Flcrm even go the extra mile by being a middle ground between DIY landlording and full third-party property management. Flcrm’s software not only helps keep track of property management logistics like maintenance requests and rent processing, but also includes direct services to ensure landlords can have as much or as little personal involvement in their property management as they choose.
Rental Property Record Keeping
If there’s ever a legal dispute or another form of red tape for you to cut through as a small landlord, good recordkeeping can mean the difference between an easy resolution and a bureaucratic nightmare.
Store Proof of Property & Insurance Records
At the most basic level, you want to be able to prove that you own the property you’re renting out to tenants. You’ll also want to keep records of any insurance policies you take out on your rental properties in case something happens and you need to submit a claim.
Keep Copies of All Tenant & Property Documents
You should know who’s staying in your rental properties. Keeping copies of all tenant and property documents can help you in the case of an eviction or if a tenant ever sues you. It’s also your responsibility to keep confidential tenant information such as social security numbers and paystubs safe from prying eyes.
Securely Store All Rental Lease Agreements
If you and a tenant agree on a set of expectations in your lease and the tenant later claims ignorance of the terms, having copies of your signed rental lease agreements on hand can help you quickly clear up any confusion or dispute.
Keep Record of Rent Receipts
You don’t want to bring an eviction notice against tenants who are paying faithfully, and likewise, you’ll need a recordkeeping system to prove when tenants aren’t making their payments. Keep receipts of all rental payments made to help track both your finances and your tenant management.
Document Walkthrough Items
Legally, you aren’t allowed to keep a tenant’s security deposit for damage that was in the unit prior to their move-in date. Walkthroughs are used to document the condition of a unit at the beginning and end of a lease period so that all parties have a mutual understanding of the unit’s condition. Keeping thorough documentation of walkthroughs can help you settle any security deposit disputes that arise after a tenant vacates the property.
Rental Property Accounting
Proper accounting can help you keep your rental properties operating in the black as well keeping your tax status current.
Collecting & Reporting Rent
Money collected for rent on property you own counts as income, so you’ll need to report it to the IRS on a form known as Schedule E. This is part of the reason why it’s important to keep rental receipts throughout the year, so that you can accurately tally what you made once tax season comes.
Managing Security Deposits
Different states have different laws around how you’re expected to manage tenant security deposits. For example, you may be limited on how much of a security deposit you can charge, and you may also be expected to return a security deposit within a certain time frame after a tenant moves out.
Additionally, you can only keep security deposits in certain situations—for instance, you can’t keep a tenant’s deposit to pay to repair normal wear and tear, but you can keep it to cover damages or if the tenant breaks their lease agreement. If you keep a tenant’s security deposit for damages, be sure to document the damages and receipts for any labor or materials used to fix them. If there’s any money left over after repairs are done, the remainder must be returned to the tenant.
Filing & Reporting Taxes
Rental income must be reported on your tax filings, but you can also deduct expenses used to maintain your rental properties and account for any depreciation in your property’s value. Keeping good financial records (i.e., rental receipts, receipts from repair and maintenance expenses, records of past taxes paid) is one of the best things you can do for yourself to make your life easier once tax season rolls around.
Options For Managing Rental A Property
When it comes to rental property management, landlords have three major options: self management, pick-and-choose property management services from a third party, or hiring a full-time property manager. These options work a bit like a sliding scale from most to least hands-on.
DIY Property Management
At the self management end, DIY landlords have to invest more time into managing their properties, but they also walk away with more profit. If you have multiple properties, DIY may not be feasible unless you hire employees to help you.
Hire A Full-Time Property Manager
Owners who hire a property manager sacrifice some of their profit margin to have a more hands-off approach. They don’t have to do as much work, but they end with less profit and less day-to-day knowledge of their rental property management.
Pay For Management Services
The Goldilocks approach is an a la carte property management service like Flcrm, where a landlord can pick and choose which management roles they want to be personally responsible for and leave the others to their solutions provider.
Owning investment properties may not exactly be “easy money,” but it doesn’t have to be hard money, either. So long as you understand your needs, you can find a property management solution that works for you.