How to Manage Rental Properties?
It is estimated that 72% of all rentals are managed by property management companies. There’s also a fact that 72% of all the rental and income properties are owned by mom-and-pop owners and not the corporates and the billionaires. If you are a do-it-yourself landlord or if you manage your properties on your own, congratulations. And here are some tips I’m going to give you if you are managing on your own or if you are overlooking the management company and make sure that they use these tips as well.
Owning a home and a property isn’t itself challenging enough, but when you are owning a property and renting it out for income generation or have tenants and managing it yourself, that becomes even more challenging. And you have to follow the rules and regulations of your state, your county, and your cities. But there’s also other things you have to do to make sure that you have great tenants. They’re going to stay there for a while, not going to give you a hassle, and eventually have positive cash flow. So here are the twelve tips I’m going to talk to you about.
So tip number one, you may be busy at work, you may have a family, you may have kids and you may have a job, and yet you have to manage its property. But one thing you have to keep in mind is because you are a landlord and because you have to treat the tenants right and follow regulations, you want to treat your business or the income property as a business, not just a hobby. That, hey, I’ve got some tenants staying there, whether it be your friends or relatives or just somebody you know. So you have to treat it like a business. Have your accounting, have your corporations or legal documents and everything, and follow the state and regulations of your local laws.
Tip number two. In general, most of the tenants are people getting into work. They are millennials and a lot of them are youngsters, not your older generation. So in order to attract them to find your place of rental or your unit or a house that you want to rent, you have to be online and market it online. Because most of these youngsters are millennials or people just starting a job or just getting into the housing market and moving out of their house, they’re going to go first online, just like according to the statistics, according to the National Association of Realtors. When buyers look for a home, they start their search 95% of the time online first. Before they go out looking at open houses, before they contact an agent, or before they go out driving around. Same thing with tenants, especially younger tenants. So you have to make sure that you are advertising online and follow all the disclosures of your local community.
Tip number three, and this is one of the most important tips if you want positive cash flow and long-term success from your unit or a house, whether it’s one unit or 20 units, is that you have to ask for market rents. One of the things that’s happening right now in April 2023 is people who are buying rental properties and they are buying rental properties is number one: They are paying a higher price, they are paying a higher mortgage rate. So obviously the payments are going to be high. So let’s say your monthly mortgage payment is $4,000 a month. That does not mean that you can charge $4,000 a month to your tenants. If the market rents are $3,700 or $3,600 or $3,500, you have to charge them that market rent, not what your mortgage payments are. So before you buy a rental property or income units, one of the things you may want to do is make sure that when you buy a property, your principal interest, tax, insurance, your mortgage payment is $3,000 a month or $4,000 a month. Make sure the market rent of that property of that area is $4,000 a month so that you can at least break even. Your goal when you buy investment properties, they vary, but one of the most important goals is, of course, tax savings. You want to break even or have a positive cash flow. Some people invest for the long term, they need more tax write-off, so they may go negative cash flow, $300, $400, $500, even $1,000 a month because they want the tax write-off. I’ve sold properties to some doctors where they did not care if they went negative because the negative cash flow is an expense to them. So those are unusual cases. For the mom-and-pop owners you want to make sure that you’re charging the right rents. Because what happens is if you put somebody in the rental and the market rents are $3,500 and you charging $4,000 a month, several things that happen. Number one, because you’re charging high and the tenants know that you’re charging them high, but because of desperation or because of timing, they had to get that. They’re going to give you a hard time in the sense they’re going to demand good stuff from you if it’s $4,000. If you’re overpaying, make sure it’s in great condition. You provide them the service when they call and or in a year or so they’re going to move out and find something cheaper. So when they move out, it’s going to cost you to clean up. You’re going to have a vacant two or three weeks or one month. You’re going to have a vacancy. You may have to repair some things. So over the long term, you’re going to go negative by charging more than market rent. So it’s better to stay in market rents and have the tenant stay there for 2 to 5 years and gives you less hassle. As far as demanding that, hey, any little thing, they want you to fix it or not fix it. So asking the right rent is very critical to finding that great tenant for you in the long term.
Tip number four is make sure you screen your tenants. Just because they’re a friend of a friend or a relative that suggests to you somebody doesn’t mean they’re going to be great tenants. Most of the people who refer other friends and tenants, they don’t know the deep history of the credit history or medical history or the credit reports, or anything else. So you want to make sure you check the criminal records, financial records, any links that they had from other tenants and do some references, check around, call around. Of course these days a lot of the owners may not respond to you by phone because they want written authorization to even refer you or give you a referral of the past tenants’ history. So it is difficult. So please do your homework, make sure you screen them, and try to find out anything that may be a red flag before you rent them.
The fifth tip is, let’s say I’m in California, so if you’re in California, you want to use the forms that are legally binding in the state of California. So if you’re in Texas or any other state, please use the form that are standard forms that applies to your state or county. So that if anything happens, then you are abiding by the laws and restrictions or terms and conditions of your state. So always use the right forms and conditions. These days, lot of landlords and I’ve known some people do that and they call me later and find out that they use the wrong form. So if you’re in California and you go online and find a rental document or a lease application or a lease agreement, it may be of another state. So read the fine print. If you do that, consult an attorney or an escrow office or some other apartment property managers and make sure you have the right forms to use them because that’s very critical. If something happens, hopefully, it does not, then your forms will be binding in that state you are in.
Tip number six is also very important now that you found a tenant and you have a date, just before the tenants move in, have them sign a condition report. Or these days you may want to take some pictures, have them sign an agreement or some documentation of the conditions. Let’s say everything’s fine in your apartment or in your unit, but there’s a stain on the carpet that you just can’t get rid of and the tenants are okay with it. Have it in writing that the stains are still there so that when they move out, you don’t forget and charge them the staining, and that creates an argument or unnecessary discussion or even a dispute. So you want to make sure the condition before they move in. And then, of course, when they move in, you want to check out when they check out. You want to compare the condition when they move out and when they move in. So you can ask for some damages or repairs or cleaning when they move out. Just like in homes when we sell a home. One of the forms we have is called the AVID (Agent Visual Inspection Disclosure). So we as agents, write down what the condition was of any property and note things to the seller and the buyer. There are things, some things are missing or something wrong with the house. So there’s a form called move in, move out. At least in California, we use those forms called move in, move out. Those are standard forms. So you’re welcome to use those. Make a note of the bathroom, the condition of the living room, the rooms, the TV room, or anything. You have the outside, the inside, and make a note so when they move out, you know exactly what was wrong or not wrong. And when they move out, you know what is wrong or what was not there before. So, great idea to have a move-in and move-out report and the condition report.
Tip number seven is, other than the standard forms that you fill out, they fill out a lease agreement between the landlord and the tenant. If you ask them anything, or if you promise them anything, or if the tenant has asked you anything, saying, “Hey, we are only three people, but on the weekends my son is going to come and stay with us, or my daughter is going to come stay with us, or relatives going to come stay with us.” Make sure you have an agreement in writing. If you don’t allow any smoking, if you don’t allow any pets, have that in writing. Of course, you have to look at all your rules and regulation of your city, your county, and your state. But any agreement that is not already in the agreement of your tenant lease agreement, there are favors or anything. Other than your norm. Have it in writing that, “Hey, in two months, you’re going to have five people extra staying in my house”, et cetera, so that there’s no confusion, no disagreement after they move in. So very important that you have any promises either from the tenant or from you to the tenant having any agreements in writing.
The 8th tip is that if you collect rent, I know in older days and I know some people still do it. I have a friend of mine that has owned this property for almost 20 years, right, a few blocks from where he lives. So he personally goes there and picks up the check every month on the first. This method is not anymore recommended. Of course, if you’re not that close, you cannot pick it up. These days, the landlords not only ask them not to send checks, but they ask them to either Zelle or Venmo or ACH transfer or do a direct deposit from bank to bank. This way you don’t have to wait for a check. The check gets lost in the mail or you have to go to the bank and deposit it, all that hassle. So these days a lot of them are using ACH transfers or direct bill pay from one bank to the other. So that is highly recommended. It saves time and hassle because every month you don’t want to open the check, sign it, and go to the bank and deposit it. That saves you a lot of time and it’s just a new way of doing business these days.
Tip number nine is not even worth saying it, but I thought I will mention it, is that if you’re a landlord, make sure you have renters insurance. Make sure you have especially depending on how many properties you have, how many assets you have if the property is in an LLC or a corporation, you want some kind of protection. So make sure you also have enough or adequate insurance on your property or renters insurance for any property damage, liability, damage, et cetera. The best way to find out if you have enough damage or enough liability or enough coverage is talk to your insurance agent that you have currently, and if you don’t have it, please get insurance right away. It’s very important that you have the right amount of insurance for any kind of coverage. So depending on if you have a house or if you have a condo, or if you have four units or 20 units, the insurance varies drastically from unit to unit or location to location. So please make sure you have adequate insurance and coverage.
Tip number ten. I won’t dwell on it too much, but one of the tips that I want to read out to you is about fair housing and tenant law. So if you have depending on your state, they all have regulations, rules, and regulations, tenant laws, tenant restrictions, section eight restrictions, rent control, whatever it is, make sure you follow the laws and regulations of your local community or your local towns and states. So do follow that. It’s very important. You don’t want any litigation later on after the tenant moves in.
Tip number eleven is very common and it’s a tip that a lot of the long-term landlords don’t do it. They have long-term tenants in, they’ve been there five years, six years, and ten years, so they don’t go inspect the property. I highly recommend for the buyers who I sell properties for income properties and tell them that at least go once a year inside the property and inspect it, not only yourself, so you know what condition they’re staying in, but maybe send an inspector. Make sure you check the smoke detectors if you have carbon monoxide detectors, any other rules and regulations that your city-state requires, you must have like fire sprinklers if it’s required, carbon monoxide detectors, if it’s required flushing your toilet regulations. So all those need to be checked. So always check that every year, every six months, I highly recommend it. In this way, your unit stays in top condition and you’re also satisfying and letting the tenant know that you’re in a safe, regulated house or unit. So it’s a great thing to do to keep up with the inspections every six months if not at least once a year.
Tip number twelve is obviously when tenants are staying there, there’s going to be some damage here and there. So if there is such a situation, maybe a sink leak or AC is not working and sometimes tenants may say don’t worry, I’ll fix it. So we highly recommend that you do not let the tenants do the fixing because you don’t know how well it is fixed and you don’t know if it’s going to keep leaking or not. So any repairs or issues that you have, we highly recommend that you send professional fixers or professional handymen, or a contractor, depending on what kind of work is needed, have it done professionally, and legally, so if there’s any issues down the road, you know that it was fixed. Let’s say there is a water leak and if the tenant does not fix the water leak properly and it keeps leaking and there’s mold that develops and later on you find out that there’s mold and the tenants, they will get upset. If they find mold, they may go after you, or they may come back for damages, or they may come back for financial. So in this case, if it was fixed by a professional contractor or a professional plumber, you would not have the mold leak in the first place. So always end a professional to fix anything, this way you know it’s done properly and you also have a record that you fixed it and you have the invoices and always take pictures as well.