Rental Property Management Guide: The Ultimate Guide to DIY or Hiring a Property Manager
Buying rental property for investment can be one of the biggest aspiration for people looking to build long term wealth. It is one of the major sources of passive income and one of the best ways to invest your savings. The significant benefits of investing in real estate are building equity for the future, getting protection against inflation, tax benefits and as noted as steady passive income. Owning rental property puts you on the path toward the financial independence you have always dreamed of but wait…!
Earning a constant stream of income from your property is not so simple. First, you need to manage and rent out your property to start generating that coveted cash flow.
The reality is that poor rental property management can turn the best investment into a bottomless pit of money.
This guide will show in detailed steps in detail on managing your rental property yourself or hiring the best property manager in your area. It will cover all the steps from renting out your property to doing taxes and accounting, or finding the best property manager for your property, to reaching an agreement with the property manager. So let’s dive in now!
Section 1: Managing your rental properties yourself:
In this section, I will show you what steps you need if you are going the DIY (Do It Yourself) rental property management route.
How to set expectations and price for your property:
Before renting out your property, you need to understand your neighborhood and local rental market. It is a time-consuming task, but it will help you determine the right price and source great tenants for your rental property.
Before setting the right price for your property, you need to do market research to understand the local rental property rates and variables driving rental prices.
You have to figure out the following questions:
- What is the local employment rate?
The local employment rate shows you how many people are employed and unemployed in your neighborhood. The more significant number of unemployed people shows that most people won’t afford the rent in the area.
- What is the Average Household size?
The average household size represents the number of persons living in a house. This will determine the demand for your property and the speed at which it will rent..
- What are the occupancy rates?
The occupancy rate shows the percentage of occupied rental properties in a town. The higher the occupancy rate, the better. If the occupancy rate is high, there will be fewer properties available for rent. This put upward pressure on rental prices, which in turn drives your income up!.
- What are the rental market rates?
The rental market rate provides you the rent rate that is consistent with other properties in your neighborhood. These comparable rental rates establish a benchmark for you to set your rental price to advertise. Typically, rates below the average area rental rate will attract renters quicker. Although, a high occupancy rate in the area and not a lot of available properties on the market to rent can allow you to set a higher than average rent rate!
- What is the renter turnover rate?
Whenever a tenant leaves a property, making it rent-ready to find a new tenants cost money. So higher turnover rate has the potential to lower your return in the ling run. Keeping the tenant in place and slightly raising the rent at renewal is a winning strategy over the long run.
- Does your location have any extra unique benefits (bus line access, easy highway access, off-street parking) that you can charge more for?
Having your rental property close to a public service like a bus line, school or hospital has excellent benefits. You can charge more rent for these services or your property may rent quicker than other less desirable places. Based on all these factors, you need to come up with the rent for your property close to the average rent in your area.
Setting tenant expectations:
You also need to set expectations for the ideal tenant before renting out your property. In this way, you will have a clear image of your perfect tenant:
- What is the minimum income requirement?
- Do you allow pets or not?
- What is the employment requirement?
- Do you allow smoking or not?
- Past rental history required or not?
- What is the minimum credit score?
- Background check
How to advertise and find tenants for your property:
After doing all the internal work, find tenants and get your property ready to be handed over to the tenant.
One of the most critical roles of the property manager is to minimize vacancies and maximize occupation rates.
To find tenants, you have to advertise everywhere you can. You may look into using MLS like Marketing platforms, such as, Zillow, Trulia, and your local paper.
After advertising your property, the next step is to screen the tenants. You must ask these tenant screening questions to find the best tenants for your property that match your tenant profile:
- What date would you like to move in?
- Do you have pets?
- How long have you lived in your current home?
- How many people will be living with you?
- What is your monthly income?
- Do you have any criminal records?
- Have you ever been evicted?
Now it’s time to do a final walk-through with your tenant and document as many observations as possible to prevent future disagreements over the damage. Depending on your local laws, this can be an important factor in claiming damages against the tenants security deposit held.
How to maintain your property:
After renting out your property, it may feel that you can enjoy your passive income peacefully, but your responsibilities are not over yet. For example, if your tenant’s water pipe explodes at 3:00 am, you should be available to help him out as a property manager. First, you will need to visit the site immediately and assess the problem and either repair the problem yourself or get a contractor to repair the issue. As a property manager for your property, you are the point of contact for your tenant. If they need any help with a problem, you should be available to resolve the issue asap and thoroughly.
Is this the type of thing that you want to deal with it? Dealing with tenant maintenance calls is perhaps the biggest driver for real estate investors to enlist the help of a property manager. Should you keep a list of local vendors handy? You need to be aware of the prices charged by vendors? Maintenance cost is another factor, which can shrink your cash flow quickly.
Regular Preventive Checkups:
You may need to perform a visit to your property once or twice a year. It will help keep the lines of communication open with your tenant and keep you updated about the minor unreported issues in your property.
To effectively manage a property, it’s crucial to have a team that can handle administrative tasks, routine maintenance, and emergency services. All properties need some maintenance, from simple light fixing to misaligned door latches.
You need to prepare the following things in advance in case of such incidents:
- List of reliable local contractors
- List of local landlords that can help you with local contractors
- Schedule regular checkups of appliances
- Specific maintenance fund
While every landlord hopes never to see a doomsday maintaince situation but , there’s always the possibility that your property will need a major repair while it is rented out.
If such a situation arises, it’s your responsibility to provide your tenant an alternate housing for the time they have already paid in. So to handle such cases, you need to be prepared in advance to avoid any inconvenience later on.
The next phase is to collect rent from your tenants. There are multiple methods to rent collection like:
- You can collect rent online using different online payment methods like Paypal, ERentPayment, RentMatic and RentMerchant.
- If you choose online rent payment as your primary source, you have to allow other payment methods like collecting rent by mail for the people who don’t have access to the online services.
- You can also collect rent in person from your tenants, but the downside is, it is time-consuming and frustrating, but you have payments in your hand immediately. Make sure you provide receipts and documentation for cash payments.
Yearly Increase in Rent:
Due to the rising costs in the area, you may have to raise the rent. Raising the rent while you already have tenants in a property may seem impossible. However, disclosing the possibility of increasing rent in the agreement may help them decide in advance if they want to continue living with the new rate or not.
Rental price analysis should be done yearly and should be added to the contract.
At the end of the contract expiration, you may have to negotiate an increase in rent according to the rental price analysis or a flat increase in rent every year.
Evictions are also part of all this process; however, no landlords like to go through this phase, but you must be ready for such situations in advance if you are managing your property. New landlords don’t know what to do in such situations, so it’s better to read the state laws on eviction or seek guidance from any law expert.
Property managers should know the laws around rental property management. Local state laws are one of the biggest property management challenges that property managers will ever encounter. Even experienced property managers can violate a previously unknown rule or regulation, especially when migrating to a new market.
Following are a few ways for the property managers to learn the new laws:
- Visit state and municipal sites containing property management regulations;
- Consult with a property management attorney to get an explanation of specific guidelines.
- Check with local property management or homeowners’ association groups to collect information.
Any attempt to evict the tenant yourself is against the law and will put you in much trouble.
To evict the tenant, follow these steps:
- Give them official notice and let them know how much time they have to fix the thing that is breaking the lease agreement
- File the eviction in the court if the notice terms are not met
- Do not accept payment if you are filing for eviction
- Read local laws
- Hire a lawyer if rules seem confusing
- Wait for the court ruling & local sheriff to perform the actual eviction
One of the major tasks in property management that most people don’t care about and end up losing money is accounting.
- You can hire an accountant to do your taxes, and they will maximize the deductions
- You need to take into account everything like maintenance cost and other property keep up. All these costs are deductible
- Set up separate specific business accounts for your business expenses to separate them from your personal expenses.
Section 2: How to hire a property manager:
As you have probably started to notice, good management requires a significant amount of work. Depending on how many properties are being managed, it can be a full-time job. So first, you need to figure out if you can manage your rental property yourself or need to hire an expert to handle your properties in an efficient way. Hiring a property manager can free up time, resources and in some cases increase your monthly income.
Do you need a property manager?:
Property management is a baffling task, and it can take a significant time of your life to manage all the properties yourself. So before getting into property management, you need to decide if it is worth it or can you handle it alone?
The following questions will help you decide if you need a property manager:
- How far do you live from your rental property, and how frequently can you manage to visit the property regularly?
- How do you deal when things are not going your way? Do you consider yourself a tolerant person or not?
- How many units or property(s) do you own?
- What is your experience with property maintenance and repairs?
- How quickly are you able to get your unit rented quickly?
- Are you able to handle the accounting and taxes?
- How well do you understand local government laws?
- Are you willing to be online 24/7?
- From a financial point of view, is managing your property worth your tasks?
- Can you manage contractors to ensure that they are doing a high level of work?
- Do you plan on acquiring multiple rental properties? The more rental properties one has in a portfolio, the more necessary property management firms are?
How to find the best property managers?
Finding the right property manager can make or break the profit from your rental property investment. Here are a few ways to find the best property managers in your local area:
- Ask friends and colleagues for referrals
- Research property managers online
- Visit their properties
- Interview different people
- Check licenses and certifications
- Join your local real estate association
Screening Questions to hire a property manager:
- How do you advertise or fill a rental vacancy?
- Will I pay property management fees if my property is vacant?
- How do you decide on a rental rate for your market?
- How do you screen new tenants?
- How long does it take to fill vacancies?
- How do you handle tenant maintenance requests?
- How are delinquent requests dealt with?
- Will you handle evictions if needed?
- How long they have been in business
- What type of properties do they generally manage?
Property management agreement:
A property management agreement is binding between you and the property manager. Therefore, make sure you understand all the terms before signing. In addition, you might want to have a lawyer look over the contract to make sure you are protected.
Managing your rental properties can save you money, and you may have the satisfaction that your property is in good hands, and it’s also the only way you can be in total control of your property. However, self-management is difficult, time-consuming and you also need to give a substantial amount of time to learning new skills like maintenance and local, which may seem a daunting task if you are an investor. All these things can limit your profit potential in many ways.
Again, these include:
- The number of properties you can purchase will depend on how much time you have to manage them.
- You will only be able to buy properties near where you live, which might not be the most profitable market for you to invest in.
- To make more money, you will eventually need to hire outside help.
The primary outcome of this guide is:
If you own less than 3 or 4 rental properties in your local area, you may look into self-managing your properties.
However, this is not the case for most investors because most of them are busy with their 9-5 job or business and don’t have much time to learn new skills and laws when they can outsource them for a fraction of an amount.
If you want to be a successful investor, you must ask these questions to yourself:
- Do you want to spend your time saving a little money?
- Do you want to spend a little money saving a lot of time?
The choice is yours.